Seven key principles from behavioural economics and psychology which highlight the shortfalls in the neoclassical model
Emma Dawney, Hetan Shah
22 September 2005
Standard neoclassical economic analysis assumes that humans are rational and behave in a way to maximise their individual self-interest. While this ‘rational man’ assumption yields a powerful tool for analysis, it has many shortfalls that can lead to unrealistic economic analysis and policy-making.
This briefing distils many concepts from behavioural economics and psychology down to seven key principles, which highlight the main shortfalls in the neoclassical model of human behaviour.
The seven principles:
Our aim is to change the analytical framework for policy as well as to maximise the impact of policy interventions. We also hope to reduce unintended outcomes arising from making decisions based solely on a neoclassical economic analysis.
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