ROUTLEDGE HANDBOOK OF BEHAVIORAL ECONOMICS There is no doubt that behavioral economics is becoming a dominant lens through which we thinkabouteconomics.Behavioraleconomicsisnotasingleschoolofthoughtbutrepresentative ofarangeofapproaches,and,uniquely,thisvolumepresentsanoverviewofthem. Inthewidespectrumofinternationalcontributors,eachprovidesanexplorationofacentral approach,aspect,ortopicinbehavioraleconomics.Takentogether,thewholevolumeprovidesa comprehensive overview of the subject which considers both key developments and future possibilities. Part One presents several different approaches to behavioral economics, including George Katona,KenBoulding,HarveyLeibenstein,VernonSmith,HerbertSimon,GerdGigerenzer, Daniel Kahneman, and Richard Thaler. This section looks at the origins and development of behavioraleconomics,andcomparesandcontraststheworkofthesescholarswhohavebeenso influential in making this area so prominent. Part Two presents applications of behavioral economics, including nudging; heuristics; emotions and morality; and behavioral political economy,education,andeconomicinnovation. TheRoutledgeHandbookofBehavioralEconomicsisidealforadvancedeconomicsstudentsand facultywhoarelookingforacompletestate-of-the-artoverviewofthisdynamicfield. RogerFrantzisProfessorofEconomicsatSanDiegoStateUniversity,USA. Shu-HengChenisProfessorattheDepartmentofEconomicsatNationalChengchiUniversity, Taiwan. KurtDopferisProfessorattheDepartmentofEconomics,UniversityofSt.Gallen,Switzerland. Floris Heukelom is Assistant Professor at Nijmegen School of Management, Radboud UniversityNijmegen,theNetherlands. Shabnam Mousavi is Assistant Professor at the Johns Hopkins Carey Business School, Johns HopkinsUniversity,USA. This page intentionally left blank ROUTLEDGE HANDBOOK OF BEHAVIORAL ECONOMICS Edited by Roger Frantz, Shu-Heng Chen, Kurt Dopfer, Floris Heukelom, and Shabnam Mousavi Firstpublished2017 byRoutledge 2ParkSquare,MiltonPark,Abingdon,OxonOX144RN andbyRoutledge 711ThirdAvenue,NewYork,NY10017 RoutledgeisanimprintoftheTaylor&FrancisGroup,aninformabusiness ª2017selectionandeditorialmatter,RogerFrantz,Shu-HengChen,KurtDopfer,FlorisHeukelomand ShabnamMousavi;individualchapters,thecontributors TherightofRogerFrantz,Shu-HengChen,KurtDopfer,FlorisHeukelomandShabnamMousavitobe identifiedastheauthorsoftheeditorialmaterial,andoftheauthorsfortheirindividualchapters,hasbeen assertedinaccordancewithsections77and78oftheCopyright,DesignsandPatentsAct1988. Allrightsreserved.Nopartofthisbookmaybereprintedorreproducedorutilisedinanyformorbyany electronic,mechanical,orothermeans,nowknownorhereafterinvented,includingphotocopyingand recording,orinanyinformationstorageorretrievalsystem,withoutpermissioninwritingfromthe publishers. Trademarknotice:Productorcorporatenamesmaybetrademarksorregisteredtrademarks,andareused onlyforidentificationandexplanationwithoutintenttoinfringe. BritishLibraryCataloguinginPublicationData AcataloguerecordforthisbookisavailablefromtheBritishLibrary LibraryofCongressCataloginginPublicationData Names:Frantz,RogerS.,editor. Title:Routledgehandbookofbehavioraleconomics/editedbyRogerFrantz,Shu-Heng Chen,KurtDopfer,FlorisHeukelomandShabnamMousavi. Description:Abingdon,Oxon;NewYork,NY:Routledge,2016. Identifiers:LCCN2016004972|ISBN9781138821149(hardback)|ISBN9781315743479(ebook) Subjects:LCSH:Economics–Psychologicalaspects. Classification:LCCHB74.P8R682016|DDC330.01/9–dc23LCrecordavailableat http://lccn.loc.gov/2016004972 ISBN:978-1-138-82114-9(hbk) ISBN:978-1-315-74347-9(ebk) TypesetinBembo bySunriseSettingLtd.,Brixham,UK CONTENTS List offigures viii List oftables x Notesoncontributors xi PARTI Scientistsinthe fieldof behavioral economics 1 1 Theevolutionof behaviouraleconomics 5 Peter E.Earl 2 GeorgeKatona: afounder ofbehavioraleconomics 18 Richard Curtin 3 KenBoulding: the imageasa precursor toframing? 36 Stefan Kesting 4 HarveyLeibenstein:a firstgeneration behavioraleconomist 42 Roger Frantz 5 HerbertSimon’s behavioraleconomics 55 Esther-Mirjam Sent 6 ReinhardSelten, the dualist 66 Rosemarie Nagel,AnnaBayona, RezaKheirandish, andShabnamMousavi 7 GerdGigerenzerand VernonSmith: ecologicalrationality ofheuristics inpsychologyandeconomics 88 ShabnamMousavi v Contents 8 RichardThaler’s behavioraleconomics 101 FlorisHeukelom 9 Daniel Kahnemanandthe behavioral economicsofcognitive mistakes 112 FlorisHeukelom 10 GeorgeKatona’s contributions tothe startofbehavioral economics 129 HamidHosseini 11 Behavioural rules:Veblen, Nelson–Winter, Ostromand beyond 139 GeorgBlind 12 Generating mesobehaviour 152 ManuelScholz-Wa¨ckerle 13 Schumpeter, Kirzner,Knight, Simon,andothers:behavioral economicsandentrepreneurship 168 ThomasGrebeland MichaelStu¨tzer 14 A boundedrationality assessmentof thenew behavioraleconomics 179 MorrisAltman PARTII Specificdomainsofbehavioral economics 195 15 Behaviorally informed regulation, part1 199 CassR.Sunstein 16 Behaviorally informed regulation, part2 210 CassR.Sunstein 17 Ignorance: literary light ondecision’s darkcorner 230 DevjaniRoy andRichard Zeckhauser 18 Smart societies 250 Shu-HengChen, Bin-TzongChie,and Chung-ChingTai 19 Behavioural macroeconomics:time, optimismandanimal spirits 266 MichelleBaddeley 20 Rethinking behavioraleconomicsthrough fast-and-frugal heuristics 280 ShabnamMousavi,Gerd Gigerenzer, andReza Kheirandish 21 Computational behavioral economics 297 Shu-HengChen, Ying-FangKao,andRagupathyVenkatachalam vi Contents 22 Emotionsineconomy 320 Nina Bandelj, JulieKim, andZaibu Tufail 23 Moralityas avariable constrainton economicbehavior 336 Daniel Friedman 24 Behavioral politicaleconomy 348 Gigi Fosterand PaulFrijters 25 Behaviourallaboreconomics 365 XianghongWang 26 Behaviouraleducationeconomics 379 SeanLeaver 27 Behavioral innovationeconomics 392 Jason Potts 28 Economicbehaviour andagent-based modelling 405 MatthiasMueller and AndreasPyka Index 416 vii FIGURES 6.1 Optimalpaths ofthe variables inthe monopolymarket model 71 6.2 Flowchartrepresenting the decisionprocedure ofaparticipantin theexperiment 72 7.1 Placingheuristics ina spacewith degreesofcomplexityon the verticalaxisversusthe degreeofdefinability ofaproblemon the horizontalaxis 98 12.1 Developmentof different simulationtechniquesinthe social sciences 163 14.1 Thedifferent faces ofbehavioraleconomicsandthe conventional wisdom 191 17.1 Expectedconsequencesfrom unidentifiedstates 242 17.2 Prescriptiveillustration attending toignorance 243 18.1 Information overload 253 18.2 UbiquitouscomputingandInternet ofThings 255 18.3 Prosocialbehaviorinthe form ofthe digital society 258 20.1 Bias–variancetrade-offversusmodel complexity 288 21.1 Routineformulation 299 21.2 Thedecisiontree ofthe playtennis decision 307 22.1 Emotionandclassicaleconomictheory 321 22.2 Anticipatedemotions integrated into classicaltheory 321 22.3 Risk-as-feelingsperspective 322 viii Figures 22.4 Emotionalembeddednessperspective 323 23.1 Interactionsbetween "Self" and"Other" 337 24.1 Thestylized dichotomybetween the strategiesofdominance and submission 351 24.2 US debttodisposableincome 360 24.3 Europeandebtto disposableincome, inpercentages 360 26.1 Thechoice process 382 28.1 Flockof birdscreated by theBOIDSalgorithm 406 ix