Behavioural economics

Behavioral Law & Economics Goes to Court: The Fundamental Flaws in the Behavioral Law & Economics Arguments Against No-Surcharge Laws

Behavioral economics has been a growing force in many fields of applied economics, including public economics, labor economics, health economics, and law and economics. This paper describes and assesses the current state of behavioral law and economics. Law and economics had a critical (though underrecognized) early point of contact with behavioral economics through the foundational debate in both fields over the Coase theorem and the endowment effect. In law and economics today, both the endowment effect and other features of behavioral economics feature prominently and have been applied in many important legal domains. The paper concludes with reference to a new emphasis in behavioral law and economics on "debiasing through law" -using existing or proposed legal structures in an attempt to reduce people's departures from the traditional economic assumption of unbounded rationality.

What is Behavioral Economics?

Coverage of Behavioral and Experimental Economics in Undergraduate Microeconomics Textbooks

In their commentary on our recent study 1, Tucker & Vuchinich 2 argue that the core feature of behavioral economics (BE) is the analysis of temporally protracted molar patterns of choice behavior. We appreciate this view, and agree that BE has been highly effective in characterizing patterns of substance use behavior over time. However, we contend that BE is also well-suited for examining behavior at a finer level of resolution, investigating moment-to-moment influences that contribute to decisions regarding substance use and related behaviors. To use Tucker & Vuchinich's 2 example, John may not be drinking alcohol right now, but his decision to do so (or not) stems from a dynamic interplay between stable individual difference factors (e.g. personality traits, attitudes) and situation-specific, within-person influences (e.g. craving, negative affect) that serve as immediate precursors of behavior. These proximal influences are viewed increasingly as critical contributors to substance misuse 3, 4. In our view, the argument that momentary dynamic changes, whether in cognitive states or BE indices, can be 'safely ignored' 2 runs counter to current research in addiction science and psychological science more broadly 5. Ignoring such within-person variation closes the door on a potentially fruitful direction for BE 6, 7. Considerable evidence suggests that the BE indices of demand and delay discounting exhibit meaningful change in response to relevant manipulations. Delay discounting rates, for instance, change in response to drug deprivation, environmental cues and acute drug administration (for a review, see 7). The level of alcohol demand is enhanced dynamically by many of the same manipulations 8, 9. Furthermore, demand is also sensitive to pharmacological interventions 10 and contextual factors such as next-day responsibilities 11. Although this is still a nascent research area, these promising findings are consistent with an efficient cause interpretation. This may help to clarify situational factors that impact choice behavior in addiction and, in turn, provide a point of entry for in-the-moment interventions 12 and the development of personalized medicine applications 13. Tucker & Vuchinich 2 noted that only the molar approach to BE has proved useful in extensions to drinking in the natural environment. Whether this holds for laboratory manipulations of demand remains an empirical question. Recent research has laid the necessary groundwork for examining how changes in BE indices translate into drinking behavior, including linking changes in demand with actual consumption in the laboratory 14-16. Our study was designed to provide proof of concept for testing whether within-person changes in demand predict drinking in the laboratory and the natural environment, as has been demonstrated for within-person variation in craving 17, 18. We agree with Tucker & Vuchinich that both efficient and final cause interpretations of BE indices are legitimate 2, as they have also discussed elsewhere (e.g. 19). Ultimately, it is worth emphasizing that BE was developed from integrating methods across disciplines, and addiction science relies increasingly upon integration across multiple domains and levels of analyses. We would argue against an interpretation of BE that impedes its incorporation into a broader range of addiction research. None. Funding for this work was provided by National Institute on Alcohol Abuse and Alcoholism Grants R01 AA 019546 to D.M.McC. and T32 AA 013526 to K.J.S.

Human activity has led to a steady degradation of the environment over the past decades, pushing the ecosystem to the brink of collapse. It is now clear that a dramatic change in behavior is needed to avoid system collapse. Economics has been striving to devise approaches to bring about this change. While the application of rational choice models saw the solution primarily in incentivization, the effectiveness of this was cast into doubt by findings from early behavioral economics. The realization that heuristics affect human thinking and acting led to the extension of the economic policy repertoire by including nudges. While hard rules, incentives, and nudges can change human behavior in specific situations, recent findings suggest that they are not sufficient to bring about the necessary change. Current behavioral economics research sheds light on the role of the mechanisms underlying human behavior. Factors scrutinized are categories, identities, narratives, worldviews, and values, which can be united under the collective term mental models. Through these mental models it is possible to explain not only linear decision processes as is conventional, but also dynamic ones. These dynamic processes consider factors that have been highlighted as important in other behavioral sciences, such as habits and positive spillovers. In this chapter, we present a conceptual framework that describes the analysis of human behavior including mental models. The framework combines insights from behavioral economics with those from other behavioral sciences to explore far-reaching changes in human behavior and thus provide a scientific basis for the necessary transformation.

An Assessment of Behavioral Law and Economics Contentions and What We Know Empirically About Credit Card Use by Consumers

Behavioral economics has in recent decades emerged as a prominent set of methodological developments that have attracted considerable attention both within and outside the economics profession. The time is therefore auspicious to assess behavioral contributions to particular subfields of economics such as labor economics. With empirical validity among its chief objectives, one might guess that behavioral economics would have made its clearest mark in data-driven subfields such as labor economics. Motivated in part by the question of why labor economics has been a relatively slow adopter of behavioral theory, this essay surveys a wide range of behavioral studies that address core labor issues. Part of the explanation is that labor economists working in the neoclassical tradition have been relatively frank in revealing shortcomings of the neoclassical theory and aggressive in empirically testing its predictions. Therefore, new work in behavioral labor economics may represent less of a methodological break than in other subfields of economics.

Experimental and behavioral economics are well established branches in the economic science. This essay presents and discusses some results and behavioral regularities from these fields which are of potential importance for public policy. After a brief introduction of what experimental and behavioral economics is, some behavioral regularities as presentation and framing effects, pro-social behavior, and reciprocity are introduced and it is reported how they interact with prominent trading institutions, taxation, and social and individual well-being. Throughout some implications for public policy are discussed.

Mapping Behavioral Economics and its Interdisciplinary Practices

Traditional Economics looks at the persons as at some kind of rational machine which takes into consideration all available information and then makes optimal decision. Re- ality is rather different. The behavioral economics claims that there is no rational «economic human” and probably will nev- er exist. Person’s behavior is irrational and this irrationality is not random and clueless. Vice-versa - this irrationality is systemic and predictable. Behavioral economics explores what affects people›s economic decisions and the consequences of those decisions for market prices, returns, and resource allocation. Tradition- al economic research assumes that people›s economic deci- sions are based on the rule of maximizing utility. Behavioral economics uses experiments that observe human behavior in order to uncover how we think. Behavior- al economics has been called the science of decision-making. It is a growing academic discipline which uses experiments that observe human behavior in order to uncover how we think. Behavioral economics is about understanding com- mon decision mistakes that people make and why they make them. In particular, a large aspect of behavioral economics is concerned with the gap between intention and action. Classical economic theory assumes that individuals are rational. However, in the real world, we often see irrational behavior – decisions which don›t maximize utility but can cause a loss of economic welfare. It means economists need to take into account the potential for irrationality. Successful marketers must have a profound understand- ing of the consumer’s thought process in order to create a suc- cessful marketing campaign. By understanding the consumer’s decision-making process, marketers are able to develop value propositions that really fit the consumer’s needs. The impor- tance of understanding behavioral economics for marketers is immeasurable as it allows for a better understanding of the human mind. Behavioral economics allows marketing profes- sionals to optimize marketing strategies and get real results. In the article are reviewed applied aspects of behavioral economics, also theoretical and practical results of researches. These results will be useful in company management, for pol- iticians, in private decision making as they give different per- spective to rational-functional models. In case of ignoring the interdisciplinary approaches, integration of economics and psy- chology can result in waste of resources and wrong decisions.

The current study assessed the effects of behavioral economics (BE) and social marketing (SM) on the selection and consumption of garden bar fruits and vegetables in elementary school students. A quasi‐experimental study evaluated the immediate and lasting effects of BE and SM on student selection and consumption of garden bar items. The BE component provided verbal prompts to take fruits and vegetables and increased availability of garden bar favorites. SM posters acted as reminders and guided selection of garden bar items. Two intervention levels were implemented: BE + SM (n=168) and SM only (n=275), and these were compared to a control (n=205). Selection and consumption were recorded using digital images of student lunch trays. Observations occurred at pre intervention, post, and follow‐up. Mixed ANOVA was used for statistical analysis. Pre‐to‐post changes in fruit selection and consumption, as well as vegetable selection, were significantly higher among BE + SM students compared to control students. Those pre‐to‐post changes remained at follow‐up. Although vegetable selection significantly increased pre to post among SM students, the change did not remain at follow‐up. A positive, but not significant, pre‐to‐follow‐up change in vegetable consumption was observed among the intervention groups. Together BE and SM appear to foster lasting effects on student selection and consumption of fruits and vegetables.Grant Funding Source: United States Department of Agriculture

Behavioral economics for decision support systems researchers

Decision-making can be the difference between life and death in all types of aviation, but in general aviation (GA), where most of the flying is conducted as single-pilot operations, the decision-making of one individual becomes fundamentally important. It is critical to consider, first, why pilots make bad decisions that can ultimately lead to weather-related aviation accidents or incidents; and second, whether a better understanding of weather-related decision-making can inform regulations that will improve decision-making and consequently reduce the frequency of pilot-error accidents. Behavioral economics (BE) aims to better understand individual decision-making to model decision-making pathways. As individual decision-making is central to aviation safety, better modeling of decision-making pathways should be a central aim not just for pilots, but also for aviation regulators, such as the Civil Aviation Safety Authority (CASA) in Australia. While there has been little analysis of pilot decision-making using BE, we argue that BE, with its focus on predictive models of individual decision-making, provides a rich framework to understand pilot decision-making and inform more targeted regulation. This argument is in four parts. The first part identifies that there is an ongoing safety issue with visual flight rules (VFR) pilots flying into instrument meteorological conditions (IMC). The second part introduces some of the core concepts of BE, such as the rejection of perfect rationality and the reliance upon certain behavioral biases in decision-making. We argue that VFR into IMC is an appropriate context in which to apply BE as there is an identifiable measure of a pilot’s welfare and concerns around paternalism fall short when dealing with protecting the welfare of those likely to be impacted by a pilot’s decision-making, such as passengers and aircraft owners. The third part reviews the existing research applying behavioral models of decision-making in respect of VFR into IMC and identifies three behavioral biases that—among others—can lead to poor decision-making: (i) environmental literacy, (ii) overconfidence, and (iii) prospect theory. The final part briefly introduces some potential avenues for BE to inform regulatory reform, including better education of pilots and regulators in respect of the psychological factors to which pilots may fall victim, as well as more directed training for pilots to address the environmental literacy concerns identified in this part. We conclude that the regulatory environment should be reformulated to adequately account for predictable behavioral biases.

The article is a conceptual work based on behavioural and evolutionary economics achievements. The aim of this article is to present the latest concepts and research achievements in behavioral economics, to help understand economic decision-making processes, and to suggest methods and procedures for improving them. The article presents the theoretical foundations of behavioral economics, based on literature studies and key concepts: intuition and cognitive biases, affective traits, reciprocity, trust and justice. Intuition and emotions are not the opposite of rationality but a reflection of the evolution of rationality. Neuroscience research strengthens the evolution theory of rationality development. Neuroscience has the potential to explain the mental processes involved in emotions, cognition, judgment and decision making. The second part presents a discussion on improving decision-making processes, taking into account the achievements of behavioural economics.