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George Loewenstein, a prominent behavioral economist, recalls thatIn 1994, when Thaler, Camerer, Rabin, Prelec and I spent the year at the Center for Advanced Study in the…
George Loewenstein, a prominent behavioral economist, recalls thatIn 1994, when Thaler, Camerer, Rabin, Prelec and I spent the year at the Center for Advanced Study in the Behavioral Sciences, we had a meeting to make a kind of final decision about what to call what we were doing. Remarkably, at that time, the name behavioral economics was not yet well established. I actually advocated “psychological economics,” and Thaler was strong on behavioral economics. I'm kind of glad that he prevailed; I think it's a better, catchier, label, although it creates confusion due to association with Behaviorism. (G. Loewenstein, personal email to author, June 16, 2008)
This paper aims to give a brief review on behavioral economics and behavioral finance and discusses some of the previous research on agents' utility functions, applicable…
This paper aims to give a brief review on behavioral economics and behavioral finance and discusses some of the previous research on agents' utility functions, applicable risk measures, diversification strategies and portfolio optimization.
The authors also cover related disciplines such as trading rules, contagion and various econometric aspects.
While scholars could first develop theoretical models in behavioral economics and behavioral finance, they subsequently may develop corresponding statistical and econometric models, this finally includes simulation studies to examine whether the estimators or statistics have good power and size. This all helps us to better understand financial and economic decision-making from a descriptive standpoint.
The research paper is original.
This chapter conducts a systematic comparison of behavioral economics’s challenges to the standard accounts of economic behaviors within three dimensions: under risk, over…
This chapter conducts a systematic comparison of behavioral economics’s challenges to the standard accounts of economic behaviors within three dimensions: under risk, over time, and regarding other people. A new perspective on two underlying methodological issues, i.e., inter-disciplinarity and the positive/normative distinction, is proposed by following the entanglement thesis of Hilary Putnam, Vivian Walsh, and Amartya Sen. This thesis holds that facts, values, and conventions have inter-dependent meanings in science which can be understood by scrutinizing formal and ordinary language uses. The goal is to provide a broad and self-contained picture of how behavioral economics is changing the mainstream of economics.
The global financial crisis (GFC) has undermined the legitimacy of orthodox neo-classical economic assumptions, which nevertheless continue to frame the philosophical…
The global financial crisis (GFC) has undermined the legitimacy of orthodox neo-classical economic assumptions, which nevertheless continue to frame the philosophical assumptions of teaching in business schools. The purpose of this paper is to make a case in favour of an expansion of the business school curriculum to incorporate behavioural economics. The paper will also contend that behavioural economics can be connected to social economics, as they are both heterodox in this study and analyse economic phenomenon outside of a neo-classical framework. The aim is to contribute to arguments for an expanded curriculum, beyond the framing assumptions of neo-classical rationalism. This paper will also support its case by reviewing behavioural economics to make the case that this literature can be connected to social economics. This assertion is based on shared connections, including the importance of Kantianism in behavioural economics and in social economics. These connections will be discussed as a common point of reference points, or ties that can serve to broker links between these two economic paradigms. Practical implications (if applicable) the GFC presents an opportunity to re-shape the business school curriculum to acknowledge the centrality of socio-economics and behavioural economics, and consequently to offer an alternative to the dominant ontological assumptions – taken from the economic understanding of rationality – that have previously underpinned business school pedagogy.
The paper presents an inter-disciplinary teaching case, which incorporates socio-economic and behavioural economics perspectives. The teaching case concerned a socio-economic understanding of corruption and white-collar crime. It was also inter-disciplinary to include inputs from business history and criminology. The teaching case developed an appreciation among students that corruption, white-collar crime and entrepreneurship can be analysed within a social economics and behavioural economics lens.
The teaching case example discussed an alternative socio-economic and behavioural economics understanding to core areas of the MBA curriculum with the potential to be included in other academic disciplines. This enabled students to apply a behavioural economic approach to white-collar crime. The findings derived from this case study are that behavioural economics has the potential to enhance the teaching of socio-economics.
The originality of this paper is to apply behavioural economics to a socio-economic teaching case, in core subject areas of the MBA curriculum.
This essay is a review of the recent literature on the methodology of economics, with a focus on three broad trends that have defined the core lines of research within the…
This essay is a review of the recent literature on the methodology of economics, with a focus on three broad trends that have defined the core lines of research within the discipline during the last two decades. These trends are: (a) the philosophical analysis of economic modelling and economic explanation; (b) the epistemology of causal inference, evidence diversity and evidence-based policy and (c) the investigation of the methodological underpinnings and public policy implications of behavioural economics. The final output is inevitably not exhaustive, yet it aims at offering a fair taste of some of the most representative questions in the field on which many philosophers, methodologists and social scientists have recently been placing a great deal of intellectual effort. The topics and references compiled in this review should serve at least as safe introductions to some of the central research questions in the philosophy and methodology of economics.
In the past decade, the effectiveness and efficiency foreign aid (Aid Industry) has generated considerable debate in both of the academic and popular press. Despite…
In the past decade, the effectiveness and efficiency foreign aid (Aid Industry) has generated considerable debate in both of the academic and popular press. Despite spending billions of dollars in foreign aid well over a billion people remain in extreme poverty. This paper did not intend to question the magnitude of the effort or the motives of donors or aid agencies, but rather why the aid programs have not been more effective.
Certain research in behavioral economics, pathological altruism, and emotional empathy may help provide answers. Common to these theories is the idea that well-intentioned actions or policies may cause unintended, harmful consequences to either the donors or the intended beneficiaries of these actions or policies. This paradoxical result is typically due to the altruist’s inability to properly analyze the situation for a variety of reasons. The Aid Industry may be particularly susceptible to these behavioral biases and thus is likely to suffer to some extent from unintended adverse consequences.
This paper focused on ethical considerations at the microlevel, that is, the paper considered the impact of aid on individual’s economic utility and human dignity as opposed to macromeasures such as gross domestic product. Our purpose was to examine how behavioral theories can improve foreign aid efficiency and effectiveness. Using specific examples and considering ethical arguments based on utility and rights theories, we illustrated how these behavioral theories help explain the Aid Industry’s suboptimal results.
Despite widespread interest in “behavioral strategy,” it is not clear what this term, or its associated academic subfield, is all about. Unless a critical mass of scholars…
Despite widespread interest in “behavioral strategy,” it is not clear what this term, or its associated academic subfield, is all about. Unless a critical mass of scholars can agree on the meaning of behavioral strategy, and professionally identify with it, this embryonic community may face a marginal existence. We describe three alternative conceptions for the academic subfield of behavioral strategy, along with assessments of the pros and cons of each. The “small tent” version amounts to a direct transposition of the logic of behavioral economics to the field of strategic management, specifically in the style of behavioral decision research. The “midsize tent” view is that behavioral strategy is a commitment to understanding the psychology of strategists. And the “large tent’ view includes consideration of any and all psychological, sociological, and political factors that influence strategic outcomes. We conclude that the midsize tent represents the best path forward, not too narrow and not too broad, allowing rich scope but with coherence. The large tent conception of behavioral strategy, however, is not out of the question and warrants serious consideration.
This chapter incorporates gender consciousness into critiques of the rational actor model by revisiting Carol Gilligan's account of moral development. Economics itself…
This chapter incorporates gender consciousness into critiques of the rational actor model by revisiting Carol Gilligan's account of moral development. Economics itself, led by the insights from game theory, is reexamining trust, altruism, reciprocity, and empathy. Behavioral economics further explores the implications of a more robust conception of human motivation. We argue that the most likely source for a comprehensive theory will come from the integration of behavioral economics with behavioral biology, and that this project depends on the insights from evolutionary analysis, genetics, and neuroscience. Considering the biological basis of human behavior, however, and, realistically considering the role of trust, altruism, reciprocity, and empathy in market transactions requires a reexamination of the role of gender in the construction of human society.
First, we revisit Gilligan, and argue that her articulation of relational feminism faltered, in part, because she could not identify the source of the stereotypically feminine. Second, we consider the ways in which the limitations of the rational actor model meant that law and economics could also not resolve the relational concerns that Gilligan raised. Third, we discuss the rediscovery of gender that is emerging from the gendered results of game theory trials and the new research on the biological basis of gender differences. Finally, we conclude that incorporating the insights of this new research into law and the social sciences will require a new methodology. Instead of narrow-minded focus on the incentive effects in the marginal transaction, we argue that reconsideration of stereotypically masculine and feminine traits requires an emphasis on balance.
This commentary argues that social marketing and the application of behavioural sciences to policy constitute two converging paths towards better policies. It highlights…
This commentary argues that social marketing and the application of behavioural sciences to policy constitute two converging paths towards better policies. It highlights points of convergence and divergence between both disciplines and the potential benefits of further embedding social marketing principles and methods within the recent trend of applying behavioural sciences to policy.
The commentary relies on a review of the behavioural sciences and social marketing literatures and on an analysis of institutional reports reviewing cases of behaviourally informed policies.
Behavioural sciences are increasingly informing policies to promote societal well-being. Social marketing has seldom been explicitly considered as being part of this phenomenon, although it is de facto. Both disciplines share similar end-goals, inform similar policy applications and are rooted in behavioural analysis. They diverge in their theoretical frameworks, their relative emphasis on behaviour change and the span of interventions they generate. Several benefits of embedding social marketing principles and methods within the current way of applying behavioural sciences to policy are identified.
Scholars applying behavioural sciences to policy are encouraged, when appropriate, to use the insights and methods from social marketing. Social marketing can engage in a dialogue with behavioural sciences to explore how to pilot the convergence of both approaches in practice.
The novelty of this contribution lies in providing the first comparison of the application of behavioural sciences to policy with social marketing, and in using the policy-making cycle framework to map the contributions and complementarities of both disciplines.
In this chapter, I draw from theory and research on intergroup relations and decoupling to critique prevailing conceptions of behavioral strategy, and then propose a…
In this chapter, I draw from theory and research on intergroup relations and decoupling to critique prevailing conceptions of behavioral strategy, and then propose a viable alternative. I suggest that prevailing definitions of behavioral strategy exclude or marginalize theoretical perspectives that should logically be included, which has (1) created undesirable ingroup/outgroup dynamics in the strategy field and (2) resulted in decoupling between behavioral strategy as defined by category leaders and the actual content of research conducted by category members. I contend that this state of affairs has likely reduced the impact of behavioral strategy on other disciplines, and also likely constrained its impact on non-academic audiences. As an alternative, I propose a more interdisciplinary approach that involves identifying behavioral mechanisms that explain how social and psychological processes at different levels of analysis interact and interrelate to affect strategy and performance.