Foreword

Abstract

The legitimacy of including behavioral economics in mainstream economic thinking has sharply increased in the last few years. 1 Behavioral-based books are in the best-seller list in many countries; behavioral analyses are part of the standard curriculum in most graduate schools; most recently, the Nobel Prize committee attributed this year's prize to Richard Thaler, for "integrating economics with psychology".2 But we must go further.There is a widely perceived need for economic studies that explore real human behavior, especially after the global financial crisis hit the world ten years ago.3 The simplifying assumption of a rational and self-interested agent has proved insufficient to explain the systematic deviations that have contributed to the crisis.4 Of course there is a long tradition of studies on individual behavior, tracking back to Simon's seminal 1955 contribution and his 1957 book aptly named Models of Man. 5 Allais, Ellsberg and others 6 detected the fundamental limits of the economists' particular model of man.But for many years the economic discipline, while fully accepting those insights, considered them as just a useful warning that economics does not deal with real human beings but with simplified representations.We now believe that economic models, especially when used to inform policy making, should also be robust regarding real human beings' behavioral traits.Limited ability to process information, aversion to losses, endowment effects, and social preferences could all imply that policies deemed sub-optimal in standard neoclassical settings are in fact the most * Senior Deputy Governor of the Bank of Italy and President of IVASS. 1 See DellaVigna (2009) for a survey of academic literature; Driscoll and Holden (2014) for a discussion on how the behavioral findings have informed macroeconomic modeling; Lunn (2014) and OECD (2017a) for wide-ranging examples and analyses on the application of behavioral insights to public policies.2 The Committee for the Prize in Economic Sciences in Memory of Alfred Nobel (2017).3 See for example Hendry and Muellbauer (2017) and the literature quoted there.4 See the account in Gorton (2010).

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 0 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.