Behavioral Economics

This article describes the emerging subfield known as behavioral economics, which borrows from psychology, empirically tests assumptions used elsewhere in economics, and provides theories that aim to be more realistic and closely tied to experimental and field data. Highlights from the experimental findings of behavioral economics are discussed. The article remarks critically on the role of empirical realism and continued use of as-if methodology in behavioral economics. Problems in normative behavioral economics are given special attention as debates arise concerning how to interpret empirical findings that contradict standard definitions of axiomatic rationality. Ecological rationality, methodological pluralism, and Simon's notion of bounded rationality are considered