ABSTRACT
It may come as something of a surprise to learn that the roots of modern-day behavioral economics can be found in the origins of neoclassical (mainstream) economics. As the prefix suggests, neoclassical economics grew out of classical economics (sometimes referred to as the ‘dismal science’). Many behavioral economic principles are, in fact, a rediscovery of ideas that were first formulated in the work of classical economic thinkers, such as Adam Smith, who is considered to be the first economist in the modern sense, and who is best known for his principles of the free market. This history and concepts based chapter describes the work of other classical thinkers, including David Ricardo, Jeremy Bentham, and John Stuart Mill, as well as early critics of the assumptions of neoclassical economics, namely Thorstein Veblen and John Kenneth Galbraith. What is important for behavioral economics is how these theorists shaped classical and, then, neoclassical economics, and how the assumptions they held still inform economic thinking today. The dawning of more sophisticated ideas in psychology in the 20th century, and the work of Tversky and Kahneman in particular, contributed greatly to the synthesis of psychology and economics in the emerging field of behavioral economics.
