This paper analyzes the net-present-value (NPV) model, a keystone in economics: Behaviors and lines of reasoning of NPV-minded decision makers are observed and analyzed. As a result, one finds out that the NPV methodology is biased and its decision makers fall prey to various forms of fallacies...

This chapter surveys literature on experimental law and economics. Long the domain of legally minded psychologists and criminologists, experimental methods are gaining significant popularity among economists interested in exploring positive and normative aspects of law. Because this literature...

In light of behavioral findings regarding inconsistent individual decision-making, economists have begun to re-conceptualize the notion of welfare. One prominent account is the preference purification approach (PP), which attempts to reconstruct preferences from revealed choices based on a...

Whereas many others have scrutinized the Allais paradox from a theoretical angle, we study the paradox from an historical perspective and link our findings to a suggestion as to how decision theory could make use of it today. We emphasize that Allais proposed the paradox as a normative argument,...

This book chapter demonstrates that there has been from Adam Smith to Vernon Smith a tradition of economic scholarship that is grounded in the decision calculus of individuals, or what F.A. Hayek referred to as the logic of choice, which requires neither the heroic assumptions of omniscience,...

Recently, the positive theory of rational choice has come under attack from experimental psychologists and economists. Their experimental results, gathered together under the banner of behavioral analysis, show that the maximizing model of rational choice often does not provide a very accurate...

This paper provides an overview of the work of Herbert Simon and his ideas about rational decision making. By his own standards, Simon is an economist who works in the tradition of Adam Smith and Alfred Marshall. The central theme in Simon’s research is how human beings organize themselves in...

Behavioral economics characterizes decision-makers using psychologically-informed models. Cognitive science produces psychologically-informed models. Why don't these disciplines talk more? Here, the author presents several arguments for why cognitive science should inform behavioral economics -...

Behavioral economics aspires to replace the agents of neoclassical economics with living, breathing human beings. Here, the author argues that behavioral economics, like its neoclassical counterpart, often neglects the role of active sense-making that motivates and guides much human behavior....

A model of a decision problem frames that problem in three dimensions: sample space, target probability and information structure. Each specific model imposes a specific rational decision. As a result, different models may impose different, even contradictory, rational decisions, creating choice...