Behavioral Economics: The Basics
Behavioral economics is everywhere – whether used by governments to shape our judgement and decision making, advertisers and marketers to sell products, or even politicians to sell policies, its insights are important and far-reaching. Behavioral Economics: The Basics is the first book to provide a rigorous yet access ible overview of the growing field that attempts to uncover the psy – chological processes which mediate all the economic judgements and decisions we make. In seven chapters, the book answers questions like:
• What is behavioral economics?
• How does it help us to understand economic behavior?
• What does it tell us about how people form judgements and make decisions in their private and public lives?
• What does it tell us about the psychological nature of financial catastrophes that afflict our economic system?
With recommended further readings throughout, Behavioral Economics: The Basics is essential for all students taking courses in behavioral economics, economic psychology, consumer psychology, microeconomics and game theory, and also for professionals looking for an accessible introduction to the topic.
Further online resources may be found at www.behavioraleconomicsbasics.net Philip Corr is Professor of Psychology at City, University of London, where he specializes in behavioral economics. Reflecting his broader personality neuroscience focus, he is most interested in how individual differences in funda – mental systems of motivation and emotion relate to economic behavior.
Anke Plagnol is Lecturer in Psychology (Behavioral Economics) at City, University of London. Her research focuses on the economic choices individuals make and how these affect their subjective well-being.
Behavioral economics is a relatively new and exciting branch of the social sciences with considerable real-world applications. It is important; but it can be complex and, even, confusing. In recognition of this fact, this book aims to provide an introduction to the basic issues that define the field, including theoretical, historical and practical aspects. We show that although behavioral economics may well be seen as a new branch of the social sciences its roots go very deep in economic theory and history – all the way back to the first economist in the modern sense, Adam Smith. In fact, behavioral economics is the modern form of much older traditions and the most recent manifestation of long-standing dissatisfaction with mainstream economic viewpoints.
In planning this book, we decided to do something different to other books on behavioral economics. Our book is aimed at the interested reader who wants to get a real – and academically credible– appreciation of this complex field while at the same time gaining a sense of the deeper issues of economics and psychology. It is suit – able for students, as it is for the interested general reader. It should also be a good starting point for the professional who wants to apply behavioral economics to their own field: as we show, the applications
are numerous and highly significant.
Although our book is concerned with basics, it is not basic in content and discussion. We aim to provide readers with a sufficiently detailed, yet accessible, introduction to the whole field of behavioral economics – this is no easy feat to achieve – and we attempt to do this in a lively fashion to stimulate, perhaps even to provoke. Still, the reader has the right to ask: how does this book differ from others in this field?
First, most behavioral economics books aimed at students are rich in mathematics and technical terms, and are largely inaccessible to the non-economist; ours is not. Second, our book differs from the more popular ones in being more systematic in the presentation of material – in particular, we include a discussion of the history of economics (and some moral philosophy and politics) to let the reader achieve a better grasp of the larger intellectual landscape. We present the ‘big picture’ with the intention of giving a bird’s eye view of the entire subject. We especially avoid mathematics, and we do our best to explain the technical terms which must be included if we are to do anything approaching justice to the field. Students who wish to consult the primary sources of the many studies that are summarized in this book can refer to the bibliography at the end of the book. Most of the classic theories and concepts mentioned – including utility functions and opportunity costs (economics), social influence and priming (psychology) – are covered in textbooks such as Microeconomics and Behaviour by Robert Frank and Edward Cart – wright, or An Introduction to Social Psychology by Hewstone, Stroebe and Jonas. We refer the interested reader who wishes to gain a deeper or more technical understanding of these concepts to these sources. Students of economics and psychology might already be familiar with these concepts as they are taught as part of the typical under – graduate curriculum, and we therefore focus on behavioral economics references in the bibliography
1 What is behavioral economics and why is it important? 1
2 The ascent and dissent of economics 29
3 ECON: homo economicus 59
4 HUMAN: more Homer (Simpson) than homo economicus 89
5 Manners, monkeys and moods 119
6 Nudge: whys, ways and weasels 149
7 Sell! Behavioral science of the commercial (and political) world of persuasion 179
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