Behavioral Economics: Decision-Making and Human Behavior

Neha Saxena

Abstract

The rational choice theory, a theory of decision-making, has been helpful to the economics profession for at least 60 years in theorising about how individuals make clearly economic judgements. But during the last 30 years or more, the rational choice theory has come under fire. This assault has mostly been empirical. In other words, it has been founded on experimental data showing that individuals do not act as the rational choice theory would suggest. Examples will be provided soon. Daniel Kahneman and Amos Tversky are two prominent figures in the experimental literature who have criticised rational choice theory. As was already mentioned, Kahneman received the Economics Nobel Prize in 2002. The corpus of work that was influenced by Kahneman and Tversky is known as behavioural economics, and the legal analysis that takes these conclusions into account is known as behavioural law and economics.