ABSTRACT
Behavioural economics is mostly about microeconomic phenomena, and the concepts focus on the motivations underlying individual behaviour. Applying these microeconomic principles to macroeconomic analysis is complicated by the limits to aggregation, which are particularly profound once behavioural principles are introduced into the mix. Whilst standard models aggregate, by assumption, from atomistic representative agents, behavioural economics focuses on individual differences, social interactions, behavioural biases and nonrational forces, including emotions and visceral factors. These are diffi cult, if not impossible, to aggregate. Behavioural infl uences mean that the macroeconomy cannot be a simple sum of its parts.
