Behavioral Economics

We Are Not Fully-Rational Beings--Shocker!

Yes, we know, it is shocking. When you wake up I am sure that you feel that every decision that you make it logically computed to the last significant digit. I know I do...

But seriously, and sadly, economics has a long history of assuming that people behaved "as if" they were fully-rational. In some sense, you cannot blame the economists because the models that they came up with using this assumption were better tools than existed before. Some of this was pioneering work. However, today we are ready to leave this assumption behind the same way we left behind ox cart physics and the sun revolving around the earth.

The field of Behavioral Economics does just that. It is the study of economics that takes into account the systematic ways that people behave differently from a person who is acting completely rationally.