History of Behavioral Economics
From Dickinson College Wiki
History of Behavior Finance/Economics
The Beginnings
- Economics and psychology were closely linked dating back to Adam Smith, considered a founding father of modern economics. Entering what is known as the neo-classical era of economic thought; economists began to separate themselves from psychology. They felt that economics was a natural science, one which should be explained by using rational thought.
The Middle
- Half a century ago psychology began to creep back into the realm of economics as behavioral finance was born. In the 1960’s Amos Tversky and Daniel Kahneman (psychologists) started examining the relationship between cognitive decision making in situations of risk and uncertainty to rational behavior models of economics. In 1979 they work Prospect Theory: Decision Making Under Risk, which has turned out to be one of the most influential works in behavioral finance. This work explains the psychological reasoning behind certain non rational economic decisions.
