Psychological experiments on human judgment under uncertainty showed that people often stray from presumptions about rational economic agents.
Such findings pose problems for classical economics, which presumes those norms.The Grandfather of Behavioral Economics
In March, the Nobel Prize -winning psychologist, Daniel Kahneman, died. Nobel Prizes are not given in psychology. Kahneman’s prize was in economics. In an interview in 2016, Kahneman stated that Richard Thaler, the Nobel Prize -winning economist at the University of Chicago, should be accorded the title “the father of.” Kahneman suggested that he might be remembered, instead, as “the grandfather” of that field.
Along with Amos Tversky , Kahneman conducted a group of experimental studies in the 1970s that showed that humans quite routinely fall short of our normative models of probabilistic inference and economic rationality. Kahneman and Tversky’s research showed, in addition, that the failures were not random.
Traditional economics, by contrast, utilizes a very different sort of theoretical strategy. It employs a normative judgment strategy that operates from the top down . It begins with an idealized account of humans as rational actors who recognize and make optimal decisions about economic matters . Their judgments about those matters carry normative force. They are judgments about how a rational actorproceed.
In the Ultimatum Game, the arrangements are completely transparent to both players. One player, the proposer, is given a sum of money, which is to be split with the second player, the responder. The proposer offers some percentage of the total amount to the responder—say, an amount between 1 percent and 100 percent. If the responder accepts the offer, each player receives the amounts the proposer’s offer prescribes.
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