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Behavioral Economics versus Traditional Economics: Are They Very Different?

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  • Chang, Kuo-Ping

Abstract

Behavioral economics, notably developed by Daniel Kahneman, Amos Tversky and Richard Thaler, has found consistent and pervasive anomalies in common people’s daily behaviors. This paper has employed the concepts in traditional economics (e.g., choice, relative price, and opportunity cost) to analyze the anomalies found in behavioral economics. The results show that quite a few anomalies, such as preference reversal, isolation effect and sunk cost fallacy, do not exist. This is not to say that people always make rational choices. The findings of the paper conclude, however, that common people may not be as irrational as behavioral economists have suggested (in some situations, common people may act more like a rational economist).

Suggested Citation

  • Chang, Kuo-Ping, 2019. "Behavioral Economics versus Traditional Economics: Are They Very Different?," MPRA Paper 96561, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:96561
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    File URL: https://mpra.ub.uni-muenchen.de/96561/1/MPRA_paper_96561.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Choice; sunk cost fallacy; relative price ratio (rate of return); prospect theory; endowment effect.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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