Behavioral Economics

Behavioral economics is a field that combines insights from psychology and economics to explain how people actually make decisions, which often depart from the rational, self-interested calculation assumed in classical economic models. Herbert Simon's concept of bounded rationality argued that people have limited information and cognitive capacity, so they settle for satisfactory choices. Daniel Kahneman and Amos Tversky's prospect theory showed that individuals weigh losses more heavily than equivalent gains and rely on heuristics that produce systematic biases. Richard Thaler introduced ideas such as mental accounting and the endowment effect, and with Cass Sunstein popularized nudge theory, which proposes that changing choice architecture can steer behavior without restricting freedom. Sociologists have responded in several ways. Mark Granovetter's embeddedness argument and Pierre Bourdieu's work on economic habitus emphasize that choices are socially situated, while Viviana Zelizer showed how people attach moral meaning to money. Critics argue that behavioral economics individualizes problems and overlooks structural inequality, power, and collective action. Behavioral economics remains influential in public policy, health, finance, and debates about rationality and social influence.