Psychological and experimental economics

Traditionally, economic theory has relied on the assumption of a "homo oeconomicus", whose behavior is governed by self-interest and who is capable of rational decision-making. Economics has also been regarded as a non-experimental science, where researchers -- as in astronomy or meteorology -- have had to rely exclusively on field data, that is, direct observations of the real world. During the last two decades, however, these views have undergone a transformation. Controlled laboratory experiments have emerged as a vital component of economic research and, in certain instances, experimental results have shown that basic postulates in economic theory should be modified. This process has been generated by researchers in two areas: cognitive psychologists who have studied human judgment and decision-making, and experimental economists who have tested economic models in the laboratory. This year's prize is awarded to the innovators in these two fields: Daniel Kahneman and Vernon Smith.