Editing Behavioral economics (section)

== Applied issues ==

=== Behavioral game theory ===
{{Main|Behavioral game theory}}
Behavioral game theory, invented by [[Colin Camerer]], analyzes interactive [[Strategy (game theory)|strategic]] decisions and behavior using the [[methodology|methods]] of [[game theory]],<ref>{{cite web|last=Auman|first=Robert|author-link=Robert Aumann|title=Game Theory|url=http://www.dictionaryofeconomics.com/articleid=pde2008_G000007&q=game%20theory&topicid=&result_number=3}} in {{harvnb|Palgrave|ref=Palgrave}}</ref> [[Experimental economics#Experimental topics|experimental economics]], and [[experimental psychology]]. Experiments include testing deviations from typical simplifications of economic theory such as the [[Independence of irrelevant alternatives|independence axiom]]<ref>{{cite journal|last1=Camerer|first1=Colin|last2=Ho|first2=Teck-Hua|date=March 1994|title=Violations of the betweenness axiom and nonlinearity in probability|journal=Journal of Risk and Uncertainty|volume=8|issue=2|pages=167–96|doi=10.1007/bf01065371|author-link1=Colin Camerer|s2cid=121396120}}</ref> and neglect of [[altruism]],<ref>{{cite web|last=Andreoni|first=James|display-authors=etal|title=Altruism in experiments|url=http://www.dictionaryofeconomics.com/article?id=pde008_A000240&edition=current&q=altruism%20game&topicid=&result_number=2}} in {{harvnb|Palgrave|ref=Palgrave}}</ref> [[Fair division|fairness]],<ref>{{cite web|last=Young|first=H. Peyton|author-link=H. Peyton Young|title=Social norms|url=http://www.dictionaryofeconomics.com/article?id=pde2008_S000466&edition=current&q=fairness%20game%20&topicid=&result_number=1}} in {{harvnb|Palgrave|ref=Palgrave}}</ref> and [[Framing effect (psychology)|framing effects]].<ref>{{cite journal|last=Camerer|first=Colin|author-link=Colin Camerer|year=1997|title=Progress in behavioral game theory|url=http://www.hss.caltech.edu/content/progress-and-behavioral-game-theory|url-status=dead|journal=Journal of Economic Perspectives|volume=11|issue=4|page=172|doi=10.1257/jep.11.4.167|archive-url=https://web.archive.org/web/20171223112437/http://www.hss.caltech.edu/content/progress-and-behavioral-game-theory|archive-date=2017-12-23|access-date=2014-10-31}} [http://authors.library.caltech.edu/22122/1/2138470%5B1%5D.pdf Pdf version.] {{Webarchive|url=https://web.archive.org/web/20120531215826/http://authors.library.caltech.edu/22122/1/2138470%5B1%5D.pdf |date=May 31, 2012 }}</ref> On the [[positive economics|positive]] side, the method has been applied to interactive learning<ref>{{cite web|last=Ho|first=Teck H.|year=2008|title=Individual learning in games|url=http://www.dictionaryofeconomics.com/article?id=pde2008_L000055}} in {{harvnb|Palgrave|ref=Palgrave}}</ref> and [[social preference]]s.<ref>{{cite journal|last1=Dufwenberg|first1=Martin|last2=Kirchsteiger|first2=Georg|year=2004|title=A Theory of Sequential reciprocity|journal=Games and Economic Behavior|volume=47|issue=2|pages=268–98|citeseerx=10.1.1.124.9311|doi=10.1016/j.geb.2003.06.003|s2cid=2508835 }}</ref><ref>{{cite web|last=Gul|first=Faruk|author-link=Faruk Gul|year=2008|title=Behavioural economics and game theory|url=http://www.dictionaryofeconomics.com/article?id=pde2008_G000210&edition=current&q=behavioural%20economics%20&topicid=&result_number=2}} in {{harvnb|Palgrave|ref=Palgrave}}</ref><ref>{{cite web|last=Camerer|first=Colin F.|author-link=Colin F. Camerer|year=2008|title=Behavioral game theory|url=http://www.dictionaryofeconomics.com/article?id=pde2008_B000302&q=Behavioral%20economics%20&topicid=&result_number=13}} in {{harvnb|Palgrave|ref=Palgrave}}</ref> As a research program, the subject is a development of the last three decades.<ref>{{cite book|last=Camerer|first=Colin|url={{google books |plainurl=y |id=cr_Xg7cRvdcC}}|title=Behavioral game theory: experiments in strategic interaction|publisher=Russell Sage Foundation Princeton University Press|year=2003|isbn=978-0-691-09039-9|location=New York, New York Princeton, New Jersey|author-link=Colin Camerer}}</ref><ref>{{cite book|last1=Loewenstein|first1=George|url=http://press.princeton.edu/titles/8437.html|title=Advances in Behavioral Economics 1986–2003 papers|last2=Rabin|first2=Matthew|year=2003|location=Princeton|publisher=Princeton University Press|author-link1=George Loewenstein|author-link2=Matthew Rabin}}</ref><ref>{{cite journal|last=Fudenberg|first=Drew|author-link=Drew Fudenberg|year=2006|title=Advancing Beyond Advances in Behavioral Economics|journal=Journal of Economic Literature|volume=44|issue=3|pages=694–711|citeseerx=10.1.1.1010.3674|doi=10.1257/jel.44.3.694|jstor=30032349|s2cid=3490729 }}</ref><ref>{{cite book|last=Crawford|first=Vincent P.|title=Advances in Economics and Econometrics: Theory and Applications|year=1997|isbn=9781139052009|editor1-last=Kreps|editor1-first=David M.|editor2-last=Wallis|editor2-first=Kenneth F|location=Cambridge|publisher=Cambridge University Press|pages=206–42|chapter-url=http://weber.ucsd.edu/~vcrawfor/CrawfordThExp97.pdf|chapter=Theory and Experiment in the Analysis of Strategic Interaction|citeseerx=10.1.1.298.3116|doi=10.1017/CCOL521580110.007}}</ref><ref>{{cite book|last=Shubik|first=Martin|title=Game Theory and Experimental Gaming|publisher=Elsevier|year=2002|isbn=9780444894281|editor-last1=Aumann and|editor-first1=R.|series=Handbook of Game Theory with Economic Applications|volume=3|pages=2327–51|chapter=Chapter 62 Game theory and experimental gaming|doi=10.1016/S1574-0005(02)03025-4|author-link=Martin Shubik|editor-last2=Hart|editor-first2=S.}}</ref><ref>{{cite book|last1=Plott|first1=Charles R.|title=Game Theory and Experimental Gaming#Handbook of Game Theory with Economic Applications|last2=Smith|first2=Vernon l|publisher=Elsevier|year=2002|isbn=978-0-444-82642-8|editor-last1=Aumann and|editor-first1=R.|series=Handbook of Experimental Economics Results|volume=4|pages=387–615|chapter=45–66|doi=10.1016/S1574-0722(07)00121-7|editor-last2=Hart|editor-first2=S.}}</ref><ref>''[[Games and Economic Behavior]]'' (journal), Elsevier. [http://www.journals.elsevier.com/games-and-economic-behavior Online]</ref>

=== Artificial intelligence ===
{{Main|Artificial intelligence}}
Much of the decisions are more and more made either by human beings with the assistance of artificial intelligent machines or wholly made by these machines. [[Tshilidzi Marwala]] and Evan Hurwitz in their book,<ref name="ReferenceA">{{cite book|last1=Marwala|first1=Tshilidzi|title=Artificial Intelligence and Economic Theory: Skynet in the Market|last2=Hurwitz|first2=Evan|publisher=[[Springer Science+Business Media|Springer]]|year=2017|isbn=978-3-319-66104-9|location=London}}</ref> studied the utility of behavioral economics in such situations and concluded that these intelligent machines reduce the impact of bounded rational decision making. In particular, they observed that these intelligent machines reduce the degree of [[information asymmetry]] in the market, improve decision making and thus making markets more rational.

The use of AI machines in the market in applications such as online trading and decision making has changed major economic theories.<ref name="ReferenceA" /> Other theories where AI has had impact include in [[rational choice]], [[rational expectations]], [[game theory]], [[Lewis turning point]], [[portfolio optimization]] and [[counterfactual thinking]].

=== Other areas of research ===
Other branches of behavioral economics enrich the model of the utility function without implying inconsistency in preferences. [[Ernst Fehr]], [[Armin Falk]], and Rabin studied [[distributive justice|fairness]], [[inequity aversion]] and [[reciprocal altruism]], weakening the neoclassical assumption of perfect [[selfishness]]. This work is particularly applicable to wage setting. The work on "intrinsic motivation by [[Uri Gneezy]] and [[Aldo Rustichini]] and "identity" by [[George Akerlof]] and [[Rachel Kranton]] assumes that agents derive utility from adopting personal and social norms in addition to conditional expected utility. According to Aggarwal, in addition to behavioral deviations from rational equilibrium, markets are also likely to suffer from lagged responses, search costs, externalities of the commons, and other frictions making it difficult to disentangle behavioral effects in market behavior.<ref>{{cite journal|last1=Aggarwal|first1=Raj|year=2014|title=Animal Spirits in Financial Economics: A Review of Deviations from Economic Rationality|journal=International Review of Financial Analysis|volume=32|issue=1|pages=179–87|doi=10.1016/j.irfa.2013.07.018}}</ref>

"Conditional expected utility" is a form of reasoning where the individual has an [[illusion of control]], and calculates the probabilities of external events and hence their utility as a function of their own action, even when they have no causal ability to affect those external events.<ref>{{cite journal|author=Grafstein R|year=1995|title=Rationality as Conditional Expected Utility Maximization|journal=Political Psychology|volume=16|issue=1|pages=63–80|doi=10.2307/3791450|jstor=3791450}}</ref><ref>{{cite journal|author=Shafir E, Tversky A|year=1992|title=Thinking through uncertainty: nonconsequential reasoning and choice|journal=Cognitive Psychology|volume=24|issue=4|pages=449–74|doi=10.1016/0010-0285(92)90015-T|pmid=1473331|s2cid=29570235}}</ref>

Behavioral economics caught on among the general public with the success of books such as [[Dan Ariely]]'s ''[[Predictably Irrational]].'' Practitioners of the discipline have studied quasi-public policy topics such as [[Broadband mapping in the United States|broadband mapping]].<ref name="twsA2faa4">{{cite web|date=March 17, 2010|title=US National Broadband Plan: good in theory|url=http://www.telco2.net/blog/2010/03/us_national_broadband_plan_qui.html|archive-url=https://web.archive.org/web/20100420151540/http://www.telco2.net/blog/2010/03/us_national_broadband_plan_qui.html|url-status=usurped|archive-date=April 20, 2010|access-date=2010-09-23|publisher=Telco 2.0|quote=... Sara Wedeman's awful experience with this is instructive....}}</ref><ref name="twsA2xx">{{cite news|last1=Cook|first1=Gordon|last2=Wedeman|first2=Sara|date=July 1, 2009|title=Connectivity, the Five Freedoms, and Prosperity|publisher=Community Broadband Networks|url=http://www.muninetworks.org/reports/cook-report-broadband-mapping-connectivity-five-freedoms-and-prosperity|access-date=2010-09-23}}</ref>

Applications for behavioral economics include the modeling of the consumer decision-making process for applications in [[artificial intelligence]] and [[machine learning]]. The Silicon Valley–based start-up Singularities is using the [[AGM postulates]] proposed by Alchourrón, Gärdenfors, and Makinson—the formalization of the concepts of beliefs and change for rational entities—in a [[symbolic logic]] to create a "machine learning and deduction engine that uses the latest [[data science]] and [[big data]] algorithms in order to generate the content and conditional rules (counterfactuals) that capture customer's behaviors and beliefs."<ref>{{cite web|year=2017|title=Singularities Our Company|url=https://www.singularities.com/our-company|url-status=dead|archive-url=https://web.archive.org/web/20171112074640/https://www.singularities.com/our-company|archive-date=2017-11-12|access-date=2017-07-12|publisher=Singular Me, LLC|quote=... machine learning and deduction engine that uses the latest data science and big data algorithms in order to generate the content and conditional rules (counterfactuals) that capture customer's behaviors and beliefs....}}</ref>

The [[University of Pennsylvania]]'s Center for Health Incentives & Behavioral Economics (CHIBE) looks at how behavioral economics can improve health outcomes. CHIBE researchers have found evidence that many behavioral economics principles (incentives, patient and clinician nudges, gamification, loss aversion, and more) can be helpful to encourage vaccine uptake, smoking cessation, medication adherence, and physical activity, for example.<ref>{{Cite web|title=Impact|url=https://chibe.upenn.edu/about/impact/|access-date=2020-11-23|website=Center for Health Initiatives and Behavioral Economics|language=en-US}}</ref>

Applications of behavioral economics also exist in other disciplines, for example in the area of supply chain management.<ref>{{cite journal|last1=Schorsch|first1=Timm|last2=Marcus Wallenburg|first2=Carl|last3=Wieland|first3=Andreas|year=2017|title=The human factor in SCM: Introducing a meta-theory of behavioral supply chain management|url=https://research-api.cbs.dk/ws/files/46469212/andreas_wieland_the_human_factor_in_scm_postprint.pdf|journal=International Journal of Physical Distribution & Logistics Management|volume=47|pages=238–262|doi=10.1108/IJPDLM-10-2015-0268|hdl=10398/d02a90cf-5378-436e-94f3-7aa7bee3380e|s2cid=54685109 |hdl-access=free}}</ref>