Introduction to Behavioral

Issues
1
The nature of economic behavior
Economic behavior is not just about monetary transactions. ‘Altruistic’ acts and 
spiteful acts also are relevant. We need to understand the basis of such acts in order 
to explain and predict human behavior in a wide variety of different situations, such 
as donating to charity, labor strikes, lending the neighbor one’s car and remonstrating 
with people who litter the streets.
2
Fairness and social preferences
This aspect is closely related to the fi rst one. We need to understand the importance 
of inequality aversion, the perceived kindness of others, reciprocity and the intentions 
of others if we are to predict behavior in social situations when strategic interaction is 
important. This area is covered in Chapter 10.
3
The role of neuroscience
The study described above demonstrates clearly how useful neuroscience can be in 
explaining behavior that cannot easily be explained by the standard economic model. 
In particular it shows that ‘self-interest’ needs to be understood in a broad context. 
Charitable acts are thus self-interested acts because they make us feel good, contrary 
to the common narrow understanding of self-interested acts. It is important to realize 
that only by performing neuroscientifi c studies involving techniques like functional 
magnetic resonance imaging (fMRI) can we establish fi rm evidence regarding the 
real motivations behind ‘altruistic’ and spiteful acts, since people often deny these 
motivations, and even ‘honest’ introspection may not reveal them. This aspect is 
discussed in more detail in the next chapter and also in the concluding chapter.

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559
1/
n
heuristic 239, 491 
See also
diversifi cation bias
A
Abstention 78–79, 105–9, 319 
Adaptation 16–17, 91, 136, 165, 478–9 
Adaptation theory 91–2 
Addiction 78–9, 104–5, 105–9, 322, 489 
Agency problem
See
Principal-agent theory
Aggregate risk 152–3
Aggregate uncertainty 314
Ainslie, G.W. 274, 291, 293–5, 307, 316 
Akerlof, G. 444
Allais, M. 14, 153, 161, 178, 
Allais paradox 153–4, 189, 192
Allostasis 165, 477–8 
Altruism 26–28, 395, 421–22, 442, 446
Impure 395, 422
Psychological 422 
Pure 395, 422
Ambiguity aversion 148, 160
Amygdala 95, 101, 160, 174, 314
Anchoring effect 79–80, 85, 98–99, 269, 
276, 463, 481 
Anterior cingulate cortex (ACC) 169, 184, 
314, 439, 440
Anterior insular cortex (AI) 440
Anti-Social Behaviour Orders (ASBOs) 
444 
Anti-social punishment
See
punishment
Appraisal-Tendency-Framework (ATF) 
85
Arationality 9
Arbitrary coherence 80
Ariely, D. 5, 77, 80, 102, 300, 317, 480, 
482, 483–4
‘Asian disease’ problem 196–7, 199–200, 
473
‘as-if’ models 30, 160, 201, 205, 417
Aspiration effect 91
Asset integration 151
Assumptions, role of 466–7
Asymmetric information 372–377 
See
also
imperfect information
Asymmetric price elasticities 169
Attention 83–4
Attitude 70, 74
Attraction, in learning 377–8 
Attraction effect 81, 101
Auctions 361, 363–4, 489–90 
Availability heuristic 119
Availability theory 450–1 
Axelrod, R. 406 
Axioms 68
EUT 149–52 
SEM 68–69 
See also
independence, invariance,
monotonicity, transitivity
B
Babcock, L. 360, 377–8 
Back-loaded fees 321 
Backward induction 345, 361–2, 371
See also
foldback method
‘Bads’ 70
Banerjee, A. 241 
Bargaining 358–63, 491, 500 
Structured 360–4 
Unstructured 359–60 
‘Base rate’ bias 120, 472–3
Baseline fi ring rate 96
Battigalli, P. 418–20, 429, 430
Baumeister, R.F. 8, 74, 132–3, 136
Bayesian Nash equilibrium 361, 364
Bayesian learning 380 
Bayesian probability estimation 6, 10–11, 
117–8, 120, 122, 148
Bayesian updating 11, 376, 463
Bechara, A. 50, 314
Index

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560
Becker, G.S. 157, 302
Becker-Degroot-Marschand mechanism 
194
Behavioural game theory (BGT) 340–1, 
395–6