The Agenda of BE Good theories – abstractions; 4 criteria

Behavioral revisions – game theory, loss-aversion, time-inconsistent preferences, inequality-aversion, reciprocity, endowment effects, framing effects, anchoring effects, lack of fungibility, choice bracketing

Criticisms of BE Profusion of models

1. Situation-specific models 2. Heterogeneous Populations 3. Conflicting theories feature of science4. Relatively new area

Lack of normative status

Complicates policy implications

Are We Really Irrational? Trivializations

Even highly motivated experts biased.

Misinterpretationse.g. conjunction error, representativeness heuristic, framing.

Inappropriate testsComputational limitations, inappropriate problem formats, norms.

Rational rationality

Policy Implications Individuals1) Emotions and memory – durability bias, forgetfulness2) Inter-temporal conflicts in decision-making – time-

inconsistency3) Game theory – repeated interactions

Firms1) Inter-temporal conflicts – charging for investment and

leisure goods2) Loss-aversion – reference prices, reducing Q instead of

increasing P3) Game theory – signalling to competitors, labour contracts

and fairness

Governments1) Loss-aversion – policies in recession, trade-offs2) Inter-temporal conflicts – policy trade-offs, pensions,

health issues3) Game theory – auctions, trade policy, environmental

policy, mediation