Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors in the decisions of individuals or institutions, and how these decisions deviate from those implied by classical economic theory.
In economics, time preference is the current relative valuation placed on receiving a good or some cash at an earlier date compared with receiving it at a later date.
Neuroeconomics is an interdisciplinary field that seeks to explain human decision-making, the ability to process multiple alternatives and to follow through on a plan of action. It studies how economic behavior can shape our understanding of the brain, and how neuroscientific discoveries can guide models of economics.
A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a given destination at a specified time. The preferred route can then account for information such as the length of each of the possible routes, the amount of fuel in the vehicle, traffic conditions, etc.
In economics, hyperbolic discounting is a time-inconsistent model of delay discounting. It is one of the cornerstones of behavioral economics and its brain-basis is actively being studied by neuroeconomics researchers.
In economics, dynamic inconsistency or time inconsistency is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time. This can be thought of as there being many different "selves" within decision makers, with each "self" representing the decision-maker at a different point in time; the inconsistency occurs when not all preferences are aligned.
Affective forecasting is the prediction of one's affect in the future. As a process that influences preferences, decisions, and behavior, affective forecasting is studied by both psychologists and economists, with broad applications.
A hot-cold empathy gap is a cognitive bias in which people underestimate the influences of visceral drives on their own attitudes, preferences, and behaviors. It is a type of empathy gap.
The Department of Social and Decision Sciences (SDS) is an interdisciplinary academic department within the Dietrich College of Humanities and Social Sciences at Carnegie Mellon University. The Department of Social and Decision Sciences is headquartered in Porter Hall in Pittsburgh, Pennsylvania and is led by Department Head Gretchen Chapman. SDS has a world-class reputation for research and education programs in decision-making in public policy, economics, management, and the behavioral social sciences.
One way of thinking holds that the mental process of decision-making is rational: a formal process based on optimizing utility. Rational thinking and decision-making does not leave much room for emotions. In fact, emotions are often considered irrational occurrences that may distort reasoning.
Distinction bias, a concept of decision theory, is the tendency to view two options as more distinctive when evaluating them simultaneously than when evaluating them separately.
Cristina Bicchieri is an Italian–American philosopher. She is the S.J.P. Harvie Professor of Social Thought and Comparative Ethics in the Philosophy and Psychology Departments at the University of Pennsylvania, professor of Legal Studies in the Wharton School, and director of the Master in Behavioral Decision Sciences program and the Philosophy, Politics and Economics program. She has worked on problems in the philosophy of social science, rational choice and game theory. More recently, her work has focused on the nature and evolution of social norms, and the design of behavioral experiments to test under which conditions norms will be followed. She is a leader in the field of behavioral ethics and is the director of the Center for Social Norms and Behavioral Dynamics at the University of Pennsylvania.
Shane Frederick is a tenured professor at the Yale School of Management. He earlier worked at Massachusetts Institute of Technology. He is the creator of the cognitive reflection test, which has been found to be "predictive of the types of choices that feature prominently in tests of decision-making theories, like expected utility theory and prospect theory. People who score high on the CRT are less vulnerable to various biases, and show more patience in intertemporal choice tasks.
Predictably Irrational: The Hidden Forces That Shape Our Decisions is a 2008 book by Dan Ariely, in which he challenges readers' assumptions about making decisions based on rational thought. Ariely explains, "My goal, by the end of this book, is to help you fundamentally rethink what makes you and the people around you tick. I hope to lead you there by presenting a wide range of scientific experiments, findings, and anecdotes that are in many cases quite amusing. Once you see how systematic certain mistakes are—how we repeat them again and again—I think you will begin to learn how to avoid some of them". The book has been republished in a "revised & expanded edition".
Choice architecture is the design of different ways in which choices can be presented to decision makers, and the impact of that presentation on decision-making. For example, each of the following:
Itamar Simonson is a professor of marketing, holding the Sebastian S. Kresge Chair of Marketing in the Graduate School of Business, Stanford University. He is known for his work on the factors that determine the choices that buyers make. His academic career started at the University of California at Berkeley, where he taught for six years, before he moved to Stanford. Many of his former PhD students hold senior positions at some of the best universities in the world.
Max Hal Bazerman is an author and researcher whose work focuses on negotiation, behavioral economics, and ethics. In his most recent book, Better, Not Perfect, Bazerman provides insight into how individuals can make better decisions for themselves and for the world. In their 2020 book The Power of Experiments, Bazerman and Michael Luca describe how technology companies and other organizations are increasingly relying on randomized control trials to test their ideas, generating both benefits and costs for society at large. Bazerman is the Jesse Isidor Straus Professor of Business Administration at Harvard Business School. In 2019, he received the Lifetime Achievement Award from the Organizational Behavior Division of the Academy of Management.
The less-is-better effect is a type of preference reversal that occurs when the lesser or smaller alternative of a proposition is preferred when evaluated separately, but not evaluated together. The term was first proposed by Christopher Hsee.
Eric J. Johnson is a professor of marketing at Columbia University where he is the inaugural holder of the Norman Eig Chair of Business. He is the Co-Director for the Center for Decision Sciences.
Present bias is the tendency to settle for a smaller present reward rather than wait for a larger future reward, in a trade-off situation. It describes the trend of overvaluing immediate rewards, while putting less worth in long-term consequences. The present bias can be used as a measure for self-control, which is a trait related to the prediction of secure life outcomes.
