Behavioral
"People tend to be happy when they live up to how they think they should be; and they are, correspondingly, unhappy when they fail to live up to those norms." George Akerlof
An Introduction to Economic Theory Before the Behavioral Approach: The Keynesian Approach
In his 2006 speech, "The Missing Motivation in Macroeconomics," George Akerlof, a Nobel Prize-winning economist, challenges some ideas about macroeconomics that were established by the well-respected John Maynard Keynes.
History of Behavioral Economics
Behavioral economics began when scientific research on cognitive decisions and human emotions was used to give economist a deeper understanding of economic decisions. Using psychology and economic theories economists can create behavioral models.
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it” –Adam Smith
He is most famous for publishing The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations
His studies concentrated in the philosophy, psychology, and ethics behind economics. He divided the moral system into two main groups. The first was the nature of morality which included propriety, prudence, and benevilance. The second group was the motive of morality which included self-love, reason, and sentiment.
Jeremy Bentham is known for his studies in utility and decision making. He came up with the idea that pleasure and pain can be organized by dimension, which is their intensity or duration. He focused on the maximization principles behind the economics of consumers, firms, and creating balances between the two. He also studied the relevance of forced saving, propensity to consume, the saving-investment relationship. These studies have formed our modern ideas of income and how employees and employeers work together.
Neo-classical period (1871)
economics separated from psychology and was being reshaped into a natural science
During this period there were still economists who used psychological explanations in their analyses Examples include: Francis Edgeworth (1845-1926)
The five neutralities discussed by Akerlof are:
Bibliography Akerlof, George A. "The Missing Motivation in Macroeconomics". [1]
