Managerial Economics and Strategy, 2/e

4.6 Behavioral Economics

So far, we have assumed that consumers are rational, maximizing individuals. A new field of study, behavioral economics, adds insights from psychology and empirical research on human cognitive and emotional biases to the rational economic model to better predict economic decision making.8 We discuss three applications of behavioral economics in this section: tests of transitivity, the endowment effect, and salience. Later in this book, we examine the psychology of decision making in networks (Chapter 9), strategic interactions (Chapter 13), and under uncertainty (Chapter 14).

8The introductory chapter of Camerer et al. (2004) and DellaVigna (2009) provide excellent surveys of the major papers in this field and heavily ...