Behavioural Economics
Some relevant changes in the concept of behavioural economics through time makes its definition difficult. Analysing and comparing the work of categorization proposed by Sent (2004) and Tomer (2007), a substantial difference between two periods in the history of behavioural economics development emerges.
The first period is named by Sent (2004) “old” behavioural economics. The main references are the four schools that, according to Earl (1988), made the emerging of old behavioural economics possible, namely, the Carnegie School (with Simon), research teams from the University of Michigan (with Katona), the University of Oxford, and the University of Stirling. The second period is named “new” behavioural economics. The main references are to the work of C.F. Camerer, L.C. Babcock, C. Eckel, G. Loewenstein, and M. Rabin. D. Kahneman and A. Tversky are the primary referents of a transitional period, linking old and new behavioural economics. Old behavioural economics is characterized by a radical opposition to neoclassical economics; with this contrast diminished in new behavioural economics. The reasons why the definition of behavioural economics has drastically changed through time should not be a surprise, given the evolution that the concept has gone through from the old to the new period.Simon, as an old behavioural economist, defines as a pleonasm the expression “behavioural economics” since, from his perspective, thinking of an economics that ignores effective behaviours is impossible (Simon 1987). He strongly criticizes the core of neoclassical economics and in particular concepts such as efficiency, maximization, and equilibrium (Simon 1989).
The core ideas of the old behavioural economics seem to be changed by the new behavioural economics. According to Camerer and Loewenstein behavioural economics “does not imply a wholesale rejection of the neoclassical approach to economics based on utility maximization, equilibrium and efficiency. The neoclassical approach is useful because it provides economists with a theoretical framework that can be applied to almost any form of economic (and even non economic) behaviour” (Camerer and Lowenstein 2004: 3).
The difference between old and new behavioural economics is thus mainly as regards a criticism of neoclassical economics. Some differences in the interpretation of Simon’s concept of rationality made this change possible. Old behavioural economics considers bounded and procedural rationality as related concepts that radically modify economics. New behavioural economics maintains only bounded rationality, isolated from procedural rationality and satisficing (Augier 2003). Bounded rationality is compatible with maximization, and, in this way, it allows to preserve much of the neoclassical method. At the same time, bounded rationality is considered sufficient for behavioural economics.