BridgeFrom 1979
Behavioural economics
How do real people actually make decisions?
The 30-second version
Real people aren't perfectly rational. They hate losses, procrastinate and stick with defaults. Behavioural economics tests these habits and uses them to design better policy, such as automatic pension enrolment. Some famous findings haven't survived replication, so read it critically.
Big questions it works on
Go deeperKey ideas, thinkers, evidence and where it stands today
Key ideas
- Bounded rationality: people satisfice rather than optimise (Herbert Simon).
- Prospect theory: losses hurt about twice as much as equal gains feel good (Kahneman and Tversky, 1979).
- Present bias, anchoring, mental accounting.
- Nudges: changing how choices are presented changes what people choose.
Key thinkers
Herbert Simon (Nobel 1978), Daniel Kahneman (2002), Amos Tversky, Richard Thaler (2017), Cass Sunstein
What it got right
Defaults matter enormously. Automatic enrolment in pensions raised saving rates in the UK and US.
Main criticisms
The replication crisis hit some famous findings, and one prominent researcher's honesty study was found in 2021 to use fabricated data. Nudges shrink at scale: DellaVigna and Linos (2022) found academic studies averaged 8.7 percentage points, government nudge units 1.4.
Evidence worth knowing
In a 2016 test, 11 of 18 economics lab experiments replicated (Camerer et al., Science).
Where it stands today
Mainstream research program, built into micro, finance and policy.
Family line
Reacting against the rational-agent assumption of neoclassical economics.