Fundamentals of Decision-Making

Summary After decades of economists assuming that people are rational utility maximizers, there has recently been a growing realization that we are not at all able to apply a rational decision-making process in many situations. This goes hand in hand with the renunciation of “homo economicus”.Homo oeconomicus Psychological and neuroscientific findings are increasingly woven into the economy’s human image. Today, it is considered indisputable that we have an emotional decision-making system in addition to the rational one. The first is what the research branch of behavioral economics tries to understand and make usable for economic questions. Perhaps its most important point of reference is the “Prospect Theory”, which was decisive in awarding the Nobel Prize in economics to psychologist Daniel Kahneman. Behavioral economics is primarily concerned with subconscious decision-making patterns (heuristics) and the associated errors of reasoning and biases. Together, these two groups of psychological phenomena can be described as behavior patterns. Research has identified and validated many of these patterns in the past twenty years. Behavioral EconomicsProspect TheoryKahneman, DanielHeuristikBias