Behavioral Economics For Dummies

Morris Altman, PhD, is a professor of behavioral economics at Victoria University of Wellington in New Zealand and a professor of economics at the University of Saskatchewan in Canada. He is on the board of the Society for the Advancement of Behavioral Economics and is a former president of that organization. He also edited the Handbook of Contemporary Behavioral Economics.

Introduction 1 About This Book 1 Conventions Used in This Book 2 What Youre Not to Read 2 Foolish Assumptions 3 How This Book isOrganized 3 Part I: Introducing Behavioral Economics: The Science of Making Real-World Choices 4 Part II: Understanding Choice 4 Part III: Growing the Economic Pie: The Economic Importance of Ethics, Well-Being, and Culture 4 Part IV: When Bubbles and Busts and Inefficiencies Are Possible: Some Behavioral Insights into the Strange World of Economic Reality 5 Part V: The Part of Tens 5 Icons Used in This Book 6 Where to Go from Here 6 Part I: Introducing Behavioral Economics: The Science of Making Real-World Choices 7 Chapter 1: Decoding Behavioral Economics 9 Making Wise Assumptions 9 Why reality matters 10 Why incentives matter even in behavioral economics 10 Making Sense of Choice 11 Maximizing versus satisficing 11 The effect of emotions 12 The avoidance of loss 12 How options are framed 12 Paternalism versus free choice 13 The role of social context in decision making 14 Relative positioning 14 Growing the Economic Pie 15 Deciphering Bubbles and Busts 15 Inefficient markets and investment behavior 16 Emotions, intuition, animal spirits, and business cycles 16 Understanding Happiness: Money Isnt Everything 17 Chapter 2: Getting Real about Assumptions 19 Defining an Economic Model 20 Explaining economic phenomena 21 Making simplifying assumptions 21 Discovering the irrelevance of facts 22 Understanding the role of math in model building 23 Considering cause and effect 26 Watching out for spurious correlations 26 Contemplating Conventional Economic Assumptions and Real-World Alternatives 27 Conventional assumption #1: Peoples preferences are stable and consistent 27 Conventional assumption #2: People are solitary decision makers 28 Conventional assumption #3: How people form preferences doesnt matter 28 Conventional assumption #4: People have the same preferences 29 Conventional assumption #5: People are all maximizers 30 Conventional assumption #6: People have perfect knowledge 32 Conventional assumption #7: People have unbounded computational capabilities 33 Conventional assumption #8: People have willpower 34 Conventional assumption #9: People are capable of acting upon their preferences 35 Understanding Rational Economic Behavior 36 You can do no wrong: Errors and biases in decision making 37 Selfishness and the smart society 38 Getting to Know the Behavioral Economics Actor 39 Chapter 3: Neuroeconomics: Exploring the Brain for Economic Analysis 41 Where Neuroeconomics Fits in the Behavioral Economics Perspective 43 The Brain and Economics 45 The evolution of the human brain 45 The division of labor in the human brain 48 The Emotional Brain 49 Descartes error: The somatic marker hypothesis 49 Phineas Gage and the social and emotional side of rational decision making 50 How Emotions Affect Decision Making 53 Fear and decision making 53 Happiness and decision making 54 The Limits of the Human Brain and Homo Economicus 54 The brain isnot a calculating machine 55 The brain isa scarce resource 55 What Brain Sciences Confirm for the Behavioral Economist 57 People prefer the present to the future 57 Peoples aversion to loss affects their decision making 58 What people feel isnt always what they experience 58 People care about keeping up with and beating the Joneses 60 Peoples brains evolve over their lifetimes 61 People value fairness 62 People like to trust and be trusted 63 Chapter 4: Why Incentives and Markets Matter, but Money Isnt Everything 65 The Role of Economic Incentives for Economic Behavior 66 Why money isall that matters in conventional economics 67 Opportunity costs for Homo economicus 69 Decision Making and Opportunity Costs 71 Using up your mind: Bounded rationality 71 Considering costs ot