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Behavioural economics challenges traditional view of “homo economicus”

See on Scoop.itBounded Rationality and Beyond

Once, behavioural economics was a fledgling challenge to traditional theories. Not any longer; it has matured into a growing field that tries to understand how psychology affects economic decisions. The tension between traditional and behavioural economics is centred on a fundamental issue of human behaviour. Economists have long built their discipline around a view of humans as rational actors who know how to maximize their own happiness – the “homo economicus,” or economic man. Supporters of behavioural economics say that, to the contrary, humans are anything but rational. They argue that a keener understanding of human motivations and incentives can sharpen economic models, improve policy decisions in government and business, and have a positive influence on enterprises as discrete as lunch choices, retirement savings or how companies engage with their customers. Critics of behavioural economics retort that it has sharply delineated limitations – and that its efforts to influence behaviour, sometimes known as nudges, aren’t as powerful as the field’s cheerleaders hope. Some question the propriety of this approach, whether it is government or business that’s doing the nudging. They also doubt proponents’ contentions that behavioural economics can make managers and companies more effective and that it will eventually subsume traditional economics.

See on blogs.lse.ac.uk



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