Microeconomics: Theory and Applications with Calculus, 4e

3.5 Behavioral Economics

He who has choice has trouble.

—Dutch proverb

So far, we have assumed that consumers are rational, maximizing individuals. A recent field of study, behavioral economics, adds insights from psychology and empirical research on human cognition and emotional biases to the rational economic model to better predict economic decision making.20 We discuss three applications of behavioral economics in this section: tests of transitivity, the endowment effect, and salience. Later in the book, we examine whether a consumer is influenced by the purchasing behavior of others (Chapter 11), whether individuals bid optimally in auctions (Chapter 13), why many people lack self-control (Chapter 16), and the psychology of decision making ...