Behavioral Economics

Behavioral economics is a field of applied microeconomics that enhances traditional economic theory by incorporating insights from psychology to explain why individuals make certain economic decisions. It challenges the standard assumption that people are always rational, calculating, and self-interested, instead examining how cognitive biases, emotions, and social influences systematically affect their choices. By studying phenomena like loss aversion, framing effects, and herd behavior, behavioral economists aim to build more descriptively accurate models of human behavior, leading to a better understanding of market anomalies and more effective public policy interventions.

1. Foundations of Behavioral Economics
   1. The Standard Economic Model
      1. Core Assumptions
         1. Rationality of Agents
         2. Complete and Transitive Preferences
         3. Utility Maximization
         4. Consistent Choice
         5. Bayesian Probability Updating
      2. The Concept of Homo Economicus
         1. Definition and Characteristics
         2. Implications for Economic Modeling
         3. Criticisms and Limitations
      3. Expected Utility Theory
         1. Axioms of Expected Utility
         2. Risk Aversion and Utility Functions
         3. Mathematical Formulation
         4. Limitations and Critiques
   2. The Emergence of Behavioral Economics
      1. Historical Context
         1. Early Challenges to Rationality
         2. Influence of Psychology on Economics
         3. Development Timeline
      2. Anomalies in Economic Behavior
         1. Empirical Violations of Rational Choice
         2. Systematic Deviations from Predictions
         3. Laboratory and Field Evidence
      3. The Limits of Rationality
         1. Bounded Rationality
         2. Cognitive Limitations
         3. Emotional Influences
         4. Information Processing Constraints
      4. The Integration of Psychology and Economics
         1. Interdisciplinary Approaches
         2. Methodological Innovations
         3. Theoretical Synthesis
      5. Key Pioneers and Their Contributions
         1. Herbert Simon and Bounded Rationality
            1. Satisficing Behavior
            2. Search Costs and Stopping Rules
            3. Administrative Behavior Theory
         2. Daniel Kahneman and Amos Tversky
            1. Heuristics and Biases Program
            2. Prospect Theory Development
            3. Judgment Under Uncertainty
         3. Richard Thaler
            1. Mental Accounting Theory
            2. Nudge Theory and Choice Architecture
            3. Behavioral Finance Contributions