Behavioral economics and its applications for public policy.

Abstract

For the traditional economic theory to be able to predict economic outcome, there is one basic behavioral model that it is based upon: homo economicus. During the past decades, however, the drawbacks of the concept of economic man became apparent and the need to turn to psychology for explanations about the irregularities observed in consumers’ behavior surfaced. The recognition that the unbounded rationality of homo economicus is no longer a sufficient tool for explaining consumers’ choices led to the unification of psychology and economics. The new sub-field of economic theory created by this marriage is called behavioral economics.