top of page
  • Writer's pictureStudentGuiders

Behavioral Economics, differences between neo-classical and behavioral economic theory

Behavioral Economics Assignment

Some of the main differences between neo-classical and behavioral economic theory (include practical applications and examples to highlight difference)

In neoclassical economics, people do not think with their feelings, but they use the information available in the global environment to make their own economic decisions. Rationality is part of the thinking and in decision making. In behavioral economics, people do not use the rational decision-making process, but the ingrained feelings enable them to make some of the decisions (Bogan, 2017).

What people do like and do not like in the neo-classical economics is constant and does not change so much. However, behavioral economics tends to explain how people decide on their own and how markets can function in the absence of full information or information symmetry (Bogan, 2017). Trials, making mistakes, and going for something based on your gut feeling is a central act in behavioral economists. In neoclassical economics, people cannot invest or carry out an activity without testing the waters. They take calculated risks. The focus of behavioral economics is on bounded rationality. You act out something as a trial, i.e., going outside on a rainy day to see if it will rain compared to using the weather forecast to determine whether it is going to rain or not.

2. Leading figures in the school of thought and their hypotheses, theories, works, and awards (notably the Nobel Prize).

Paul M Romer is a leading school of thought as far as economics is concerned. He won the Nobel Prize in Economics in 2018 (, 2018). His main work included the demonstration that written knowledge and the inherent knowledge that people have can be a catalyst for further economic growth. He used sound economic models to find out that ideas are not the same as other goods or services available in the market, but they require equally different market conditions so that they can thrive.

3. The current state of behavioral economics within the realm of mainstream economic teaching (is a fringe element or part of standard education).

The Increasing number of Laureates who have won the Nobel Peace Prize in behavioral economics, especially in the new millennium and since the turning of the century, means that the subject is gaining prominence in the financial world. The field is being used as a practical aspect that can be applied in the government decision making processes. From 2015, the United States government agencies embarked on a process where the insights found in behavioral economics were used in making government policies. It has evolved into the mainstream economic study ("The rise of behavioral economics," 2017).


Bogan, V. (2019). Behavioral Economics vs. Traditional Economics: What is the Difference?

Retrieved 30 June 2020, from (2018). The Sveriges Riksbank Prize in Economic Sciences in Memory of

Alfred Nobel, 2018. Retrieved 5 July 2020, from

The rise of behavioral economics. (2017). Nature Human Behaviour, 1(11), 767-767. doi:


Recent Posts

See All

When infusing pantoprazole, use a separate IV line, a pump, and an in-line filter. A brown wrapper and frequent vital signs are not needed. A client has gastroesophageal reflux disease (GERD). The pro

Your paragraph text(10).png
bottom of page