Behavioral economics is a subfield of economics that examines how psychological, cognitive, emotional, and social factors influence individuals’ economic decisions, challenging the traditional assumption of purely rational decision-making.
The psychological science of judgment and decision making (JDM), rooted primarily in cognitive psychology, investigates the processes by which individuals form evaluations, make choices, and predict outcomes, emphasizing the cognitive biasesIn decision science, bias refers to systematic and predictable deviations from accepted models of rationality. In scientific language, "systematic" and "predictable" are not meant to..., heuristics, and systematic deviations from normative standards of rationality that can affect these judgments and decisions.
Cognitive psychology has been instrumental in shaping behavioral economics by highlighting these biases and deviations, and some of the central figures in behavioral economics–such as Nobel Prize winner Daniel KahnemanDaniel Kahneman and Amos Tversky are pioneering Israeli psychologists whose collaboration profoundly impacted the the science of judgment and decision making and behavioral economics. Their... and his long-time collaborator Amos Tversky would cognitive psychologists. The overlap between the two disciplines is evident in their shared interest in understanding the complexities and imperfections of human decision-making and in the emphasis on heuristics and biases. Behavioral economics focuses more on economic contexts and implications, while cognitive psychology delves deeper into the underlying mental processes.
As the Substack and this complementary webiste become more developed there will be links below and in the margins with a detailed description of well-known processes in judgment and decision making (a) to help organize Substack posts, (b) to provide useful context for those posts, or (c) to provide useful context for other pages of this website.
Posts will often be distinguished by whether they refer to normative or descriptive decision theoryDecision scientists often distinguish between normative and descriptive models of decision making, and less often add the additional distinction between normative and prescriptive models. Normative... (or both). Normative refers to models that putatively describe processes for making an optimal (a.k.a., rational) judgment or decision given the information available. I emphasize putative here in recognition of the fact that these are models or theories and they may be wrong (indeed, I believe many widely acknowledged normative models are in fact non-normative).
Descriptive refers to models of judgment and decision making that putatively describe how people in fact make judgments or decisions, regardless of whether or not those judgments and decisions are considered normative. Again, it should be noted that while these descriptive processes may be widely accepted by decision scientists and may be well-supported by scientific evidence and theory, they are nonetheless still putative in the sense that they may not describe the processes people are in fact using to make judgments or decisions.