ABSTRACT
The chapter describes recent developments in behavioral economics that strengthen the case for general approach. Behavioral economics is a curious mix of standard neoclassical economics and a fundamental critique of that economics. Behavioral economics would be nowhere without standard economics. It is important to note, however, that in the historical development of the rationality axioms, the primary motivation of economists was not to show that following these axioms was a welfare-imperative for the individual. Thus the behavioral economist's analysis of the rationality of agents is hobbled by two factors: first, the narrow limitation of rationality to adherence to a single kind of formal system the probability calculus; second, the assumption that individuals see the world the way the economist-analyst sees it. At that point, and only relative to that point, can we assess the rationality of their behavior. They have been made more relevant than ever before by the debates, challenges and opportunities generated by behavioral economics.
