According to my bio page, I study behavioral economics. It occurred to be recently that it’s not necessarily obvious to the average person, or even to one who has studied economics, what this means. So I will try to explain, and I think a lot of you will find satisfaction in the fact that there are academics out there addressing the objections you may have had to the models presented in your Econ 101 courses.
You can think of behavioral economics as, in a way, at the intersection of economics and psychology. You see, traditional economic theory assumes that people are perfectly rational, patient, computationally proficient little economic robots that know objectively what makes them happy and make choices that maximize this happiness. (Even if traditional economists acknowledge that people aren’t perfect utility-maximizers, they usually argue that the deviations are random rather than showing evidence of consistent biases.) Behavioral economists know better- they aim to develop models which account for the facts that people procrastinate, they are impatatient, they aren’t always good decision-makers when decisions are hard (and sometimes even avoid making decisions altogether), they go out of their way to avoid what feels like a loss, they care about things like fairness in addition to economic gain, they are subject to psychological biases which make them interpret information in biased ways, etc. In my opinion, these deviations from traditional theory are necessary if economists are to understand empirically how people make decisions about what to consume, how much to save, how hard to work, how much schooling to get, etc. Furthermore, if economists understand the biases that people exhibit that lower their objective happiness, they can put on a bit of a presciptive hat in either a policy or a general life advice sense. (See Thaler and Sunstein’s Nudge for a good example of this.)
In short, you can think of the following analogy that I came across in my grad school reading in order to understand the role that behavioral economics plays: Traditional economics describes how an expert pool player does (or rather should) shoot pool. Behavioral economics desribes how the average person shoots pool. To further shed light on the issue, Foreign Policy has put together a nice little timeline of the (relatively short) history of behavioral economics:
Cool, huh? You know you wish you could be me. 🙂