Chapter 6

Quick and Simple Heuristics and Real-World Decision Making

In This Chapter

arrow Looking at what conventional economics says about decision making

arrow Delving into bounded rationality and satisficing

arrow Understanding unconventional human behavior

arrow Looking at loss aversion and the pain of loss

arrow Thinking about errors and biases in decision making

arrow Introducing fast and frugal heuristics

The populist perspective on behavioral economics — what makes it so sexy to many people — is that behavioral economists say that people are irrational and even just plain dumb. Although this interpretation of one important perspective in behavioral economics is a bit extreme, it does hit home.

This chapter examines this mainstream “errors and biases” perspective of behavioral economics, a view that holds that people tend to make decisions that are persistently error prone and biased. According to both conventional ...

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