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Behavioural economics: Classical and modern

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  • Ying-Fang Kao
  • K. Vela Velupillai

Abstract

In this paper, the origins and development of behavioural economics, beginning with the pioneering works of Herbert Simon and Ward Edwards, are traced and (critically) discussed. Two kinds of behavioural economics - classical and modern - are attributed, respectively, to the two pioneers. The mathematical foundations of classical behavioural economics are identified, largely, to be in the theory of computation and computational complexity; the mathematical basis for modern behavioural economics is claimed to be a notion of subjective probability. Individually rational economic theories of behaviour, with attempts to broaden - and deepen - the notion of rationality, challenging its orthodox variants, were decisively influenced by these two mathematical underpinnings.

Suggested Citation

  • Ying-Fang Kao & K. Vela Velupillai, 2015. "Behavioural economics: Classical and modern," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 22(2), pages 236-271, April.
    • Handle: RePEc:taf:eujhet:v:22:y:2015:i:2:p:236-271
    DOI: 10.1080/09672567.2013.792366
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    References listed on IDEAS

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    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    2. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, December.
    3. Abdolkarim Sadrieh & Axel Ockenfels (ed.), 2010. "The Selten School of Behavioral Economics," Springer Books, Springer, number 978-3-642-13983-3, December.
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    Cited by:

    1. Abigail N. Devereaux, 2019. "The nudge wars: A modern socialist calculation debate," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 32(2), pages 139-158, June.
    2. Dorian Jullien, 2016. "Under Uncertainty, Over Time and Regarding Other People: Rationality in 3D," GREDEG Working Papers 2016-20, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    3. K. Vela Velupillai, 2017. "The magic market and the Nobel turn: a review article," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(3), pages 565-585, December.
    4. Dorian Jullien, 2018. "Under Risk, Over Time, Regarding Other People: Language and Rationality within Three Dimensions," Research in the History of Economic Thought and Methodology, in: Including a Symposium on Latin American Monetary Thought: Two Centuries in Search of Originality, volume 36, pages 119-155, Emerald Group Publishing Limited.
    5. Benno Torgler, 2021. "Behavioral Taxation: Opportunities and Challenges," CREMA Working Paper Series 2021-25, Center for Research in Economics, Management and the Arts (CREMA).
    6. Alexandre Truc, 2021. "Becoming paradigmatic: the strategic uses of narratives in behavioral economics," Post-Print halshs-03345752, HAL.
    7. Steve J. Bickley & Ho Fai Chan & Benno Torgler, 2022. "Artificial intelligence in the field of economics," Scientometrics, Springer;Akadémiai Kiadó, vol. 127(4), pages 2055-2084, April.
    8. Drakopoulos, Stavros A., 2023. "The Economics of Wellbeing and Psychology: An Historical and Methodological Viewpoint," MPRA Paper 117891, University Library of Munich, Germany.
    9. Gräbner, Claudius, 2016. "From realism to instrumentalism - and back? Methodological implications of changes in the epistemology of economics," MPRA Paper 71933, University Library of Munich, Germany.
    10. Giorgos Meramveliotakis & Manolis Manioudis, 2024. "Default Nudge and Street Lightning Conservation: Towards a Policy Proposal for the Current Energy Crisis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 9228-9237, June.
    11. Stavros A. Drakopoulos, 2025. "The Conceptual Resilience of the Atomistic Individual in Mainstream Economic Rationality," Review of Political Economy, Taylor & Francis Journals, vol. 37(1), pages 1-20, January.
    12. Dorian Jullien, 2019. "Under Risk, Over Time and Regarding Other People: Rationality Across Three Dimensions," Working Papers hal-03233897, HAL.
    13. Ying-Fang Kao & Ragupathy Venkatachalam, 2021. "Human and Machine Learning," Computational Economics, Springer;Society for Computational Economics, vol. 57(3), pages 889-909, March.
    14. Steve J. Bickley & Benno Torgler, 2021. "Behavioural Economics, What Have we Missed? Exploring “Classical” Behavioural Economics Roots in AI, Cognitive Psychology, and Complexity Theory," CREMA Working Paper Series 2021-21, Center for Research in Economics, Management and the Arts (CREMA).
    15. Petracca, Enrico, 2015. "A tale of paradigm clash: Simon, situated cognition and the interpretation of bounded rationality," MPRA Paper 64517, University Library of Munich, Germany.
    16. Drakopoulos, Stavros A., 2025. "Tony Lawson’s Critique of Modern Economics and his Contribution to Heterodox Economics," MPRA Paper 123406, University Library of Munich, Germany.

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