Behavioral economics: How psychology made its (limited) way back into economics

Abstract

This paper puts the present enthusiasm for what is labeled the new behavioral economics of Shleifer, Rabin, Akerlof, Kahneman, and Mullainathan - along with other well-known contributors such as Colin Camerer, David Laibson, and George Lowenstien - in historical perspective by contrasting it with an earlier lack of interest in psychological insights in general and comparing it with an earlier incarnation, which shall be identified as old behavioral economics, in particular. The first section offers a bird’s-eye view of historical connections between economics and psychology. Section 2 then takes a closer look at old behavioral economics, while the next one considers the transitional period between old and new behavioral economics, the latter of which is discussed in section 4. The fifth section suggests explanations for the rising interest in behavioral economics.