Behavioral Economics and Its Applications

Behavioral Economics and Its Applications

Behavioral Economics and Its Applications

Behavioral Economics and Its Applications


In the last decade, behavioral economics, borrowing from psychology and sociology to explain decisions inconsistent with traditional economics, has revolutionized the way economists view the world. But despite this general success, behavioral thinking has fundamentally transformed only one field of applied economics-finance. Peter Diamond and Hannu Vartiainen's Behavioral Economics and Its Applications argues that behavioral economics can have a similar impact in other fields of economics.

In this volume, some of the world's leading thinkers in behavioral economics and general economic theory make the case for a much greater use of behavioral ideas in six fields where these ideas have already proved useful but have not yet been fully incorporated--public economics, development, law and economics, health, wage determination, and organizational economics. The result is an attempt to set the agenda of an important development in economics--an agenda that will interest policymakers, sociologists, and psychologists as well as economists.

Contributors include Ian Ayres, B. Douglas Bernheim, Truman F. Bewley, Colin F. Camerer, Anne Case, Michael D. Cohen, Peter Diamond, Christoph Engel, Richard G. Frank, Jacob Glazer, Seppo Honkapohja, Christine Jolls, Botond Koszegi, Ulrike Malmendier, Sendhil Mullainathan, Antonio Rangel, Emmanuel Saez, Eldar Shafir, Sir Nicholas Stern, Jean Tirole, Hannu Vartiainen, and Timothy D. Wilson.


The Yrjö Jahnsson Foundation was established in 1954. Mrs. Hilma Jahnsson, the spouse of the deceased professor of economics Yrjö Jahnsson, donated a generous amount of their joint estate as initial capital for the foundation. The purpose of the foundation is to promote Finnish research in economics, medicine, and health economics, and to maintain and support Finnish educational and research facilities in these fields.

International contacts are essential to the foundation, and the Finnish economics community has benefited from lectures and seminars by a long list of internationally renowned economists. Since 1963 the foundation has arranged the Yrjö Jahnsson Lectures in Economics, one of the most distinguished scholarly lecture series in this field. The well-known Yrjö Jahnsson Award in Economics is given every two years to a young economist who has made an important contribution to economics in Europe. The foundation organizes a high-profile conference to celebrate each decennial anniversary.

This volume has its basis in an international conference held in Helsinki on June 22–23, 2004 to celebrate the 50th anniversary of the Foundation. As the title indicates, the aim of the conference was to discuss the role of behavioral economics in applied fields.It is important to understand how psychologically plausible features of human behavior affect—and should affect—the design and working of economic institutions. However, it is equally important to get feedback from the applied arena to see which behavioral tendencies really matter, and to see how the framework should be developed further.

I am grateful to Professor Peter Diamond of the Massachusetts Institute of Technology, who acted as the program chairman. He did a marvelous job in choosing the set of topics and speakers. I also thank Professor Bengt Holmstro¨m, also of the Massachusetts Institute of Technology, whose input in the initial phase of the conference was very important. I am grateful to Professor Seppo Honkapohja, University of Cambridge, U.K., for helping us to shape the conference and this volume through his experience and connections. Finally, I thank all the speakers and commentators, and the Scientific Director of the foundation, Dr. Hannu Vartiainen, for making the conference such a successful event.


Chairman of the Board . . .

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