ABSTRACT
The potential problem with the standard economic model is that it is based on some strong assumptions. Behavioral economics is about applying insights from laboratory experiments, psychology and other social sciences in economics. Interestingly, Homo economicus became ever cleverer as the twentieth century progressed, Vilfredo Pareto's caveats long since forgotten. If behavioral economics can improve our understanding of the economy then we should be able to put it to good use. Behavioral economics has an interesting and checkered history. Behavioral economics draws heavily on lab experiments when looking for the existence of anomalies, comparing models and testing predictions. One thing notably lacking in much of what Herbert Simon wrote was proof that Homo economicus is not a good approximation of how people behave. The chapter also presents an overview of the key concepts discussed in this book.
