Behavioral Economics

Abstract Standard economic models portray decision makers as perfectly rational agents who act selfishly to maximize their total earnings. In contrast, ample evidence in behavioral research suggests that people systematically deviate from the extreme rational assumption of such economic models. Behavioral economics is aimed at identifying the forces which shape the economic decisions that people make, in order to provide important insights of the human nature. This type of research often deals with questions such as how the presentation of information effect decision making, how different types and valances effect behavior, and what are the social, emotional, and situational factors that underlie economic decision making. This article describes foundational research in behavioral decision making and economics that lead to the emergence of behavioral economics; outline cutting‐edge research on applied behavioral economics, debiasing techniques, and neuroeconomics; and discusses key issues for future research, such as the use of field experiments and tailor‐made methodologies, and focusing on a more comprehensive approach. Our hope is that as behavioral economics advances it will examine not only the nature of the decisions people make but also their underlying cognitive processes.