The Theories Of Behavioral Economics Essay example

1774 Words Dec 10th, 2015 8 Pages
Before the theories of behavioral economics, economics was a generally straightforward field. Adding this new approach to consumer behavior makes us seem less like robots acting only as economics expects us to act and more like the more or less irrational beings we are. As Swiss economist, Bruno Frey put it, “The agent of economic theory is rational, selfish, and his tastes do not change.” The Homo Economicus, whom psychologist Daniel Kahneman refers to as “Econs” focuses on rationality to understand how choices are made; however, Kahneman was determined to prove rationality is not always the be-all and end-all of economics. Daniel Kahneman is one of only a couple non-economists and the first psychologist to win the Nobel prize in Economics in 2002 for his work in the relatively new field of behavioral economics. In 1979, Kahneman and his colleague, Amos Tversky, published Prospect Theory: An Analysis of Decision Under Risk, which essentially explained where standard economic theory is skewed. Then, in 2011 Kahneman conventionalized his findings into his book Thinking, Fast and Slow, which became incredibly popular as it had so much depth to it while remaining accessible to everyone. Kahneman successfully integrated psychology and economics making it easier to discern the motive behind consumer behavior. One of Kahneman’s most famous theories that essentially won him the Nobel prize in economics is prospect theory and that of loss aversion. Kahneman, along with Amos…

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