Behavioral Economics

“Better decisions make a better world. However, improving decisions is a messy and difficult thing.”
– The Decision Lab

There is a common misconception that most people have well-defined preferences and make well-informed, self-interested decisions based on those preferences. Behavioral economics looks at the differences between what people “should” do and what they actually do and the consequences of those actions.

Behavioral economics combines elements of economics and psychology to understand how and why people behave the way they do in the real world. It began as a distinct field of study in the 1970s and ’80s but can be traced back to 18th-century economists, such as Adam Smith, who deliberated how the economic behavior of individuals could be influenced by their desires.

Companies use information from behavioral economics to price their goods, craft their commercials, and package their products among other things. Starbucks’ limited season drinks, Amazon’s Lightning Deals, or “buy one, get one” promotions are all tied to behavioral economics.

Context Matters! All research starts from scratch. Each analysis is in a completely new context, and possibly with a completely different audience. Behavioral economics distills the research on a given topic into its core insights and help us understand how complex behaviors work in practice.

Several principles have emerged from behavioral economics research that have helped us better understand human behavior. From these principles, governments and businesses have developed policy frameworks to encourage people to make better choices.

The Decision Lab.
University of Chicago.
Ashraf, Nava; Camerer, Colin F.; Loewenstein, George (2005). “Adam Smith, Behavioral Economist”. Journal of Economic Perspectives. 19 (3): 131–45.