The Basic Idea
The underlying distinction between traditional economics and behavioral economics is an assumption made about the nature of human decision-making. A classical economist might argue that people are rational: they act in their best interests, seeking to maximize their desired outcomes by applying reason and logic to a set of preferences. Conversely, while a behavioral economist might not necessarily say that people are irrational, they would argue that people are not always rational.
Homo economicus (Latin for economic man) is a term often used to describe a hypothetical figure who represents this concept of unconditional rationality. Behavioral economists often point to the absurdity of rationality assumptions in economic theory, highlighting the multitude of anecdotes and experimental evidence that supports the notion that beings often deviate from these assumptions. An idealized definition of behavioral economics is that it sets out to explore the decision-making processes of homo sapiens rather than that of homo economicus. The former being real people while the latter representing a personification of a theoretical concept.
The purely economic man is indeed close to being a social moron. Economic theory has been much preoccupied with this rational fool.
– Richard Thaler
