ABSTRACT
To understand human decision-making, policymakers have traditionally turned to classical economic theory. However, human behavior often deviates from the expectation of rationality put forward by these classical approaches. One area where these deviations are clearly observable is in economic and consumer choices. Mapping out these examples of consumer irrationality has helped establish the field of behavioral economics over recent decades, catalyzed through early work by Daniel Kahneman and Amos Tversky on risk in the 1970s. The study of factors that influence consumer decisions has led to a better understanding of questions such as why people avoid paying taxes, often save too little for their future, or spend money in ways that fail to improve their well-being. These insights have provided new opportunities for developing efficient, evidence-based policies aimed at tackling problems from improving consumer protection to encouraging tax compliance and waste reduction.
