Decision Making and Behavioral Economics: From Theory and Experiments to Policy
Scott Duke Kominers, Harvard University
Classical economic theory models humans as consistently rational agents. Since the pioneering work of Kahneman and Tversky in the 1970s-80s, however, economists have recognized how “behavioral” factors of human psychology can undermine classical economic intuitions about incentives, optimization, and market performance.
This talk will introduce and discuss several important heuristics and biases in human decision making, and how the resulting behaviors aﬀect economic reasoning and analysis. Along the way, simple demonstrations will test the extent to which symposium participants match the rational agent model.
Recently, behavioral economics has substantially informed the design of market institutions. In the last decade, for example:
• Changing retirement plan contribution default rules has “nudged” people to save more eﬀectively for retirement.
• Making energy conservation behavior salient and observable has produced signiﬁcant and persistent reductions in household-level energy usage.
• Recognizing heterogeneity in parents’ levels of strategic sophistication has led to interventions improving fairness and equality of access in school choice.
• Implementing commitment contracts accounting for present-bias in preferences has improved patients’ management of chronic conditions.
The talk will close with a brief discussion of how improved understanding of human decision making can inform real-world market design.