behavioral economics

Behavioral economics is a field of microeconomics that applies findings from psychology and other social sciences to understand economic behavior. It challenges the traditional economic assumption that individuals always act rationally and selfishly. Instead, behavioral economics recognizes that human decision-making is systematically influenced by cognitive limitations and biases.1

Key concepts include:
* Bounded rationality: Individuals use simplified decision-making processes due to limitations in time, information, or computational effort.1
* Mental accounting: People mentally categorize expenses, affecting spending decisions.1
* Social preferences: Fairness and the desire to prevent unfair situations can influence economic choices.1
* Lack of self-control: Present experiences often outweigh future considerations, impacting long-term goals like saving.1

Pioneers like Richard Thaler have shown that incorporating these psychological factors can lead to more effective social policies, often through subtle "nudges" that guide decision-making without removing choice. Field experiments, popularized by economists like John A. List, are used to test these theories in real-world markets.12