Behavioral Economics For Dummies®

Chapter 6

Quick and Simple Heuristics and Real-World Decision Making

In This Chapter

Looking at what conventional economics says about decision making

Delving into bounded rationality and satisficing

Understanding unconventional human behavior

Looking at loss aversion and the pain of loss

Thinking about errors and biases in decision making

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 ...