Behavioral Economics - Sp 11

1. Introduction

Over the years many have questioned exactly what the so-called "correct explanations" are for economic growth and business cycles. These uncertainties remain to exist today, however, it is important to understand that clarifying this debate cannot be done through an aggregative analysis within the Neoclassical framework. Current disputes in theory rest largely on departures from perfect rationality (acting in such a way that utility is always maximized) under uncertainty. The distinction between risk and uncertainty is fundamental in Post Keynesian economics, as it was in the economic thinking of John Maynard Keynes. While risk can be quantified, uncertainty simply cannot. By investigating literature on behavioral economics, uncertainty and risk can be addressed with the use of two different theories; non-expected utility and the utility choice theory. We will use the writings of authors such as Keynes, Camerer, Knight, Starmer, Zak, and Wray.