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Economics

Student Videos

Null Model of Agent Behaviour (Behavioural Economics)

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

This is a quick primer on the ways in which behavioural economics challenges the assumptions the null model of agent behaviour that dominated conventional economics for decades.

Behavioural Economics - A Quick Primer

The assumption of rationality pervaded standard economic thinking and theory for decades:

  1. Agents choose independently
  2. An agent has fixed tastes and preferences
  3. Gathers complete information on the alternatives
  4. Always make optimal choice given his/her preferences

In the new behavioural models, economic agents:

  • Have limited computational capacity
  • Are influenced by their social networks
  • Often act reciprocally
  • Lack self control
  • Make different choices in hot and cold states
  • Often fall back on simple heuristics
  • Satisfice rather than maximise
  • Are influenced to some extent by persistent cognitive biases

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