Behavioural Economics

Economic Approaches:

Key assumptions and aspects:

  • Main concern: Fixing behavioural market failures to enhance allocative efficiency
  • Economies are made up of: Individuals and institutions
  • Human beings are: Boundedly rational (shaped by biases, emotions and heuristics) and reciprocal (not fully selfish or altruistic)
  • Economies change through: Individual choices
  • Favoured methods: Experiments
  • Typical policy recommendations: Nudging people into more ‘rational’ behavior

Human beings are understood as boundedly rational, because of their limited cognitive capabilities. People use heuristics, such as rules of thumb and mental shortcuts, and are influenced by framing in their decision making. Behavioural economics can be said to consist of two groups. The first group, sometimes also referred to as old behavioural economists, with scholars such as Herbert Simon, George Katona, and Gerd Gigerenzer, propose an alternative framework in opposition to the dominant unrealistic neoclassical one as they argue human behavior follows fundamentally different logics. The other group, also known as new behavioural economists, with people such as Amos Tversky and Daniel Kahneman, tried instead to improve neoclassical economics by analysing departures from its assumptions about human behavior. Recently, new behavioural economics in particular has become influential both within academia and policy making with various ‘Behavioural Insights Teams’. 


  • Behavioral Economics on Exploring Economics, from 2016. 
  • Rethinking Economics: An Introduction to Pluralist Economics by Liliann Fischer, Joe Hasell, J. Christopher Proctor, David Uwakwe, Zach W. Perkins, & Catriona Watson, from 2018, chapter 6. 
  • Economics: The User’s Guide by Ha-Joon Chang, 2014, chapter 4.
  • Routledge Handbook of Behavioral Economics by Roger Frantz, Shu-Heng Chen, Kurt Dopfer, Floris Heukelom, & Shabnam Mousavi, from 2017. 
  • Behavioral Economics: Toward a New Economics by Integration with Traditional Economics By Masao Ogaki & Saori C. Tanaka, from 2018.