Reasoning is done deliberately and effortful, but intuitive thoughts seem to come spontaneously to mind, without conscious search or computation, and without effort.
People are not accustomed to thinking hard, and are often content to trust a plausible judgment that quickly comes to mind.
Perception is reference-dependent: the perceived attributes of a focal stimulus reflect the contrast between that stimulus and a context of prior and concurrent stimuli.
From the vantage point of a student of perception, it is quite surprising that in standard economic analyses the utility of decision outcomes is assumed to be determined entirely by the final state of endowment, and is therefore reference-independent.
Bernoulli: states of wealth have a specified utility, and proposed that the decision rule for choice under risk is to maximize the expected utility of wealth. It speaks of what is sensible and reasonable to do. His essay does not acknowledge any tension between prescription and description ‘ Bernoulli’s error.
Theories in behavioral economics have generally retained the basic architecture of the rational model, adding assumptions about cognitive limitations designed to account for specific anomalies. For example, the agent may be rational expect for discounting hyperbolically, evaluating outcomes as changes, or a tendency to jump to conclusions.
The model of the agent that has been presented here has a different architecture, which may be more difficult to translate into the theoretical language of economics. The core ideas of the present treatment are the two-system structure, the large role of System 1 and the extreme context-dependence that is implied by the concept of accessibility. The central characteristic of agents is not that they reason poorly but that they often act intuitively. And the behavior of these agents is not guided by what they are able to compute, but by what they happen to see at a given moment.
These propositions suggest heuristic questions that may guide attempts to predict or explain behavior in a given setting: ‘what would an impulsive agent be tempted to do”?what course of action seems most natural in this situation’? The answer to these questions will often identify the judgment or course of action to which most people will be attracted.
What is natural and intuitive in a given situation is not the same for everyone: different cultural experiences favor different intuitions about the meaning of situations, and new behaviors become intuitive as skills are acquired.
The present treatment has developed several themes: that intuition and reasoning are alternative ways to solve problems, that intuition resembles perception, that people sometimes answer a difficult question by answering an easier one instead, ‘
Incorporating a common sense psychology of the intuitive agent into economic models will present difficult challenges, especially for formal theorist.
Behavioral economics uses facts, models and methods from neighboring sciences to establish descriptively accurate findings about human cognitive ability and social interaction and to explore the implications of these findings for economic behavior. The most fertile neighboring science in recent decades has been psychology, but sociology, anthropology, biology, and other fields can usefully influence economics as well.
Behavioral economics is the combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications.
Economics traditionally conceptualizes a world populated by calculating, unemotional maximizers that have been dubbed Homo Economicus. In a sense, neo-classical economics has defined itself as explicitly ‘anti-behavioral’. Indeed, virtually all the behavior studied by cognitive and social psychologists is either ignored or ruled out in a standard economic framework.
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