ABSTRACT
This chapter further explores the psychological foundations of behavioral economics that help us understand why human behavior often deviates from neoclassical assumptions. The discussion focusses on three related areas. First, we examine social psychological findings about the influence of other people’s behavior on our own (e.g., through social norms). Contrary to neoclassical assumptions, we tend to cooperate with others and show altruism in daily life and economic games played in the labs of behavioral economists. Indeed, we seem to derive personal utility from helping others and our own preferences are, thus, interdependent with those of our peers. Second, we will look at judgement and decision making in an evolutionary context by discussing the behavior of monkeys, which is often not that different from our own – fascinating findings suggest that human judgement and decision making are rooted in our evolutionary past. Third, we consider the influence of situation-specific emotion, affect and mood and physiological states (e.g., hunger) on human behavior. As successful financial traders attest, such ‘gut feelings’ convey important information about the world. In addition to discussing these transitory states, we consider longer-term propensities in the form of personality traits (e.g., agreeableness) which shape our preferences and drive our behavior.
