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Preface
The fi rst edition of this book started out by saying that there should not really need
to be a book entitled ‘Behavioral Economics’. The same still applies some four years
later. All economics is behavioral in the sense of examining how people choose to
act and allocate resources in different types of situation. However, over the last three
decades the standard model of economic rationality, based largely on the assumption
of expected utility maximization, has come under increasing criticism from both outside
and inside the economics profession. The recent global fi nancial crisis has exacerbated
this situation. There are a large number of empirical anomalies that the standard
model fails to explain.
Behavioral economics attempts to answer many of these criticisms by taking a
broader approach to studying economic phenomena. It is behavioral in the sense that
it combines the approaches of all the behavioral sciences, in particular economics,
psychology, sociology and biology. This is currently not easy to do, since these
different disciplines have traditionally adopted different and in many ways confl icting
approaches. It is the essential philosophy of this book that economics is ‘at its best’
when it takes a cross-disciplinary approach.
Yet, in spite of building criticisms and the considerable interest and debate in the
profession, there are still hardly any current texts available on behavioral economics.
There are books on behavioral aspects of other disciplines, such as marketing, fi nance,
and even managerial accounting; there are collections of papers on behavioral
economics; and there are books on particular aspects of behavioral economics, such as
behavioral game theory. Thus there appears to be both high demand and low supply
for a text in this area.
Many undergraduate students are now starting to study aspects of behavioral
economics. The book is particularly appropriate for students in the third or fourth
years of undergraduate study, or in a postgraduate program, once they have become
familiar with the standard economics curriculum, its assumptions and methods, and
to some extent its limitations. For postgraduate students in particular the text should
serve as a foundation of linked themes and materials, providing a jumping-off point for
further reading of the original papers on which the book is based.
The objectives of the text remain the same as with the fi rst edition:
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