Reply #28: Behavioral Economics is a sub-field, relatively new, of Economics.

[bicentennial_baby]

It combines Economics with Psychology, Sociology, etc. It is used, in a way, to show that neoclassical economic theory does not necessarily apply to reality, and that the assumptions of the SEM (standard economic model) do not necessarily bear out in real life experience. The SEM assumes that humans (and firms, I suppose) are "rational actors", and that they will behave in a "rational" and predictable way when it comes to decision making, risk assessment, and their resulting behavior.

Any cynical Econ major can tell you that what we are taught bears little resemblance to what we see and experience in our day to day lives. So, within Behavioral Econ, which is a sub-field of Experimental Econ, we seek to understand how we can construct a more realistic model that reflects reality as it is experienced by the average person, firm, etc. Often these experiments and studies involve topics generally thought to be outside of the Economic milieu.

If you're interested, a good beginner's intro book that I can recommend is Dan Ariely's new book, "Predictably Irrational: The Hidden Forces That Shape Our Decisions"

:hi: