Behavioral Economics

Behavioral economics is an interdisciplinary research area whose study is aimed at increasing the explanatory and forecasting power of economic theory using behavioral hypotheses characterized by a high degree of realism. This objective is pursued through an increasingly close and fruitful dialogue with other disciplines (from cognitive and social psychology to neuroscience) and through the use of economic experiments conducted in the laboratory (the so-called “lab experiments”) and in the field (“field experiments” and “lab-in-the-field experiments”).
One of the most important theories in behavioral economics is limited rationality, proposed by Herbert Simon (1955). Limited rationality is the concept, or idea, that, during the decision-making process, the rationality of an individual is limited by various factors: by the information he possesses, by the cognitive limits of his mind, by the finite amount of time you have to make a decision. Limited rationality was proposed by Simon as an alternative basis for mathematical modeling of decision making and integrates rationality understood only as optimization, for which the decision-making process would be characterized by a full rationality of research in order to pursue the optimal choice given the available information. Later, his continuing studies in the field of decision making allowed Simon to be awarded the Nobel Prize in Economics in 1978, but he was not the only scholar in the field of behavioral economics to receive this honor. The psychologist Daniel Kahneman won it in 2002 for having integrated – thanks to studies conducted with his friend and colleague Amos Tverskyi (died 1996) – the results of psychological research in economic science, especially with regard to human judgment and decision theory under conditions of uncertainty.
In the same vein, Robert Shiller received the Nobel Prize in 2013 for his work in behavioral finance. Studies by Kahneman and Tversky (1974;1981) have found that people do not think exactly in statistical and rational terms, but would use so-called “heuristics”a term introduced by Herbert Simon in 1957 to indicate cognitive shortcuts that allow individuals to make decisions, sometimes irrational, in order to save time and cognitive energy. In particular, Kahneman and Tversky studied decision-making processes under conditions of uncertainty and risk; their experiments showed that during decision-making processes under conditions of uncertainty and risk there are often systematic errors (cognitive bias) that violate the assumptions of rational choice theory. Such systematic errors, acting in a precise direction and in particular circumstances, are foreseeable, and by deepening the functioning of cognitive processes in decision making it is possible to identify the causes.
In 2017 the economist Richard Thaler deepened the line of research inaugurated by Kahneman, and was in turn awarded the Nobel Prize. Thaler is the father of the theory of nudge, the gentle push technique, also used to orient people towards virtuous behaviors (think of the automatic option of joining a pension fund for new employees in a company) leveraging some common behaviors, such as laziness in changing an automatic choice.

All scientific publications of the Research Center related to this field of research are available at the following link.

Bibliografia:
Simon, H. A. (1955). A behavioral model of rational choice. The quarterly journal of economics, 69(1), 99-118.
Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases: Biases in judgments reveal some heuristics of thinking under uncertainty. science, 185(4157), 1124-1131.
Kahneman, D., & Tversky, A. (1981). The simulation heuristic. Stanford Univ CA Dept of Psychology.
Tversky, A., & Kahneman, D. (1981). Evidential impact of base rates. Stanford Univ Ca Dept Of Psychology.