Understanding Behavioral BIA$

Introduction

The idea of a purely rational decision maker has been held up as a gold standard by which to evaluate the quality of our life choices. Economists have discussed models of behavior that represent the rational decision maker. The term normative model applies to this case. Economists dating back to the 1800s have called this theoretical normative thinker homo economicus, or Economic Man, a person who has perfect information and embodies sound and precise judgment. He is a correct decision maker who always makes the appropriate choice reducing risk and maximizing gain in the most efficient way possible under the circumstances. Economists refer to the normative model when making comparisons to actual human behavior, which is fraught with ...