PERSPECTIVES ON ECONOMICS IN PUBLIC POLICY DEVELOPMENT

The model of rational, economic man as a utility maximizer has dominated economic analysis for generations although many argue its ability to adequately describe human economic behavior. Simon argued for an administrative model of a boundedly rational satisficer. Newer models of human behavior devel...

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Bibliographic Details
Published in:Perspectives in public affairs 2010-04, Vol.7, p.1-25
Main Author: Reece, Mary
Format: Article
Language:English
Subjects:
Behavior
Decision Making
Development Policy
Donations
Economic analysis
Economic development
Economic Models
Economic theory
Expected utility
Heuristics
Macroeconomics
Psychologists
Public Policy
Rationality
Risk
Self interest
Stochastic models
Studies
Welfare economics
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Summary:The model of rational, economic man as a utility maximizer has dominated economic analysis for generations although many argue its ability to adequately describe human economic behavior. Simon argued for an administrative model of a boundedly rational satisficer. Newer models of human behavior developed by psychologists and others suggest that humans use a variety of shortcuts to analyze information, and may make many predictable mistakes in making choices. This article provides an overview of alternatives to the rational economic model given our understanding of the human decision making modes of reasoning and intuition, psychological findings including our tendency to use heuristics and biases, prospect theory relating to risk and loss aversion associated with choices, and the implications of framing effects. Specifically, this article examines characteristics, critiques, and future research considerations for evolutionary, neuroeconomic, behavioral, and cognitive economic models utilizing this additional information about human behavior. Understanding and appropriately applying these developing alternative models has the potential to significantly improve our ability to develop successful public policy. [PUBLICATION ABSTRACT]
ISSN:1948-1764
1948-1772