Behavioral Economics ...in a nutshell




"The best way to think about behavioral economics is in contrast to standard economics. In standard economics, we think — we assume — that people are perfectly rational, which means that they always behave in the best way for them. They can compute everything, they can calculate everything and they can make, always, consistently, the right decisions. In contrast, behavioral economics doesn't assume much about people."
- Dan Ariely, Duke professor of psychology and Behavioral Economics

Like stated in the quote above, behavioral economics doesn't assume too much about people. Instead, behavioral economists carry out experiments and observe people in different situations to see how they actually do make decisions. Quite often, people behave differently than what's expected from the purely rational perspective, and they often do so in a predictable way.


Research in the field of behavioral science has exposed inner biases and approaches to decision-making. By better understanding human behavior and decision-making processes, organizations, governments and individuals can better design interventions to change behavior for the good of everyone. You can check out the post "What is a Nudge?" for more information on these kinds of interventions.



Meanwhile, here is Dan Ariely explaining Behavioral Economics in his own words.