Behavioral economics

Behavioral economics is the empirical discipline that documents systematic deviations between actual human choice and the predictions of rational-choice theory. Founded by the experimental work of Kahneman and Tversky on judgment heuristics and prospect theory, it has since expanded into a field that studies everything from present bias and loss aversion to social preferences and bounded rationality in strategic interaction. The field's central claim is not that humans are irrational — it is that human rationality is * patterned *, operating through heuristics that are fast, frugal, and systematically biased in predictable ways. This makes behavioral economics a bridge between psychology and economics, and its findings have transformed policy through nudge interventions that redesign choice architectures rather than mandating outcomes.

But behavioral economics has its own blind spots. It has been far more successful at documenting deviations than at integrating them into a unified theory of choice. The 'bias' framing implicitly treats rational-choice theory as the norm and actual behavior as the deviation, a framing that Herbert Simon's concept of bounded rationality — satisficing rather than optimizing — was designed to escape. Whether behavioral economics has truly escaped it remains an open question.