Foundations of Complex Behavioral Economics

Herbert A. Simon developed the idea of bounded rationality from his earliest works (Simon 1947, 1955a, 1957), which is viewed as the foundation of modern behavioral economics. Behavioral economics contrasts with more conventional economics in not assuming full information rationality on the part of economic agents in their behavior. In this regard, it draws on insights regarding human behavior from other social science disciplines such as psychology and sociology, among others. Without question, one can find earlier economists who argued that people are motivated by more than mere selfish maximization. Indeed, from the very beginnings of economics with Aristotle, who put economic considerations into a context of moral philosophy and proper conduct, through the father of political economy, Adam Smith in his Theory of Moral Sentiments (1759), to later institutional economists such as Thorstein Veblen (1899) and Karl Polanyi (1944) who saw peoples’ economic conduct as embedded within broader social and political contexts. Nevertheless, it was Simon who coined both of these terms and established modern behavioral economics.