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Behavioral Economics For Dummies® by Morris Altman, PhD

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Chapter 4

Why Incentives and Markets Matter, but Money Isn’t Everything

In This Chapter

arrow Exploring how traditional economics views incentives

arrow Seeing how behavioral economics expands on opportunity costs

arrow Modifying supply and demand through behavioral economics

arrow Turning to psychology to make sense of people’s decisions

Behavioral economics tends to focus on non-economic factors, going beyond the traditional focus on prices and income, to explain the choices people make. It also pays much closer attention to actual human behavior when explaining economic phenomenon. It focuses on anomalies (observed behavior that is difficult to explain using standard economic theory), which is one reason why behavioral economics is often criticized as lacking theoretical substance.

The critics maintain that behavioral economics isn’t much more than fluff — academically lightweight and not much more than a self-help narrative. Focusing on the descriptive side of behavioral economics, they claim that behavioral economists don’t provide much explanation or analysis.

In economics, explanation traditionally ...

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