Behavioral Economics

I spotted a survey article, Behavioral Economics: Past, Present, and Future, which gives a guide to this fairly-new field of economics. The subject was born from a mathematical failure. Economists had given precise axioms as to how people would take into account time and uncertainty when making decisions. The axioms allowed precise predictions that (unlike most economics) could be tested in small-scale experiments with a few test subjects. The result was almost-total failure: nearly every prediction turned out to be wrong. Instead of this being the last word on the subject, this has inspired large amounts of research into finding empirical regularities in the discrepancies between the predictions and the experimental results, and formulating a new theory that is both precise and correct. It’s interesting because the original failure could have led to a turn away from mathematical modeling altogether, but it instead has led to research in improved mathematical modeling.