Plain-language explanation.
Behavioural economics enriches standard economic theory with realistic insights from psychology — studying systematic biases, heuristics, and social influences that shape economic choices.
Core concepts and standard treatment.
Core behavioural economics covers Kahneman and Tversky's programme (availability heuristic; representativeness — base rate neglect — conjunction fallacy; anchoring — adjustment; prospect theory 1979 — value function — concave gains, convex losses — loss aversion — lambda approx 2; reference dependence — endowment effect — Thaler WTP vs WTA gap; probability weighting — overweighting small probabilities — lottery and insurance), intertemporal choice (hyperbolic discounting — Laibson — beta-delta model — present bias — gym membership puzzle; commitment devices — Ulysses contract; Thaler and Shefrin — mental accounting — planner-doer; time inconsistency — procrastination; implementation intentions — Gollwitzer), and social preferences (inequity aversion — Fehr and Schmidt — ultimatum game — rejection of unfair offers; reciprocity — Fehr and Gachter; trust game — Berg; social norms — injunctive vs descriptive — OPOWER peer comparison; identity economics — Akerlof and Kranton).
Deeper theory, debates and edge cases.
Advanced behavioural economics covers libertarian paternalism (Thaler and Sunstein — Nudge — choice architecture — defaults — SMarT pension auto-enrolment UK — Pensions Act 2008 — 10m newly saving; organ donation opt-out — Wales 2015, England 2020; BIT — EAST framework — tax letters — HMRC trial; MINDSPACE — Cabinet Office; OECD BASIC toolkit), field experiments (List — external validity; J-PAL RCTs in economics — Banerjee and Duflo; natural experiments — Card and Krueger; difference-in-difference; synthetic control — Abadie; Chetty administrative data — income mobility; pre-registration — AEA RCT Registry), and neuroeconomics (fMRI of economic decisions — Glimcher and Fehr; ventral striatum — dopaminergic reward prediction errors — Schultz; OFC — subjective value; insula — loss aversion — Knutson; dual process — vmPFC vs dlPFC; Damasio — somatic marker hypothesis — Iowa Gambling Task).
How it is applied in practice.
At the chief economist and behavioural science lead level, practitioners contribute to QJE and Journal of Economic Perspectives; advise government (BIT EAST framework — tax letter norm information £200m HMRC revenue; DWP pension communications; COVID vaccination messaging with NHS); lead financial behaviour research (FCA Financial Lives Survey; consumer vulnerability; consumer duty PS22/9 outcomes-based regulation; investor disposition effect — Odean; Shiller irrational exuberance; SDIL sugar levy 2018 reformulation — Sheffield Alcohol Policy Model); design public health behaviour change (PHE plain packaging; WHO NORMS noncommunicable disease; PHE EAST campaigns); and contribute to development economics (BRAC graduation approach; extreme poverty graduation — Banerjee Duflo Goldberg 6-country RCT).