Skip to main content
SpringerLink
Log in

Behavioral Economics and Business

  • Chapter
The Purpose of Business

Abstract

Slowly but surely behavioral economics is changing both the way we understand the world and the way the world works, especially the world of business. In recent years, some of the most tangible changes have been emanating from the work of the Office of Information and Regulatory Affairs (OIRA), a US government agency, and the Behavioral Insights Team (BIT), a branch of the UK government. Both bodies are charged with applying ideas from behavioral economics to public policy. But, behavioral ideas apply to business as well as public policy. This chapter describes some of the foundation concepts in behavioral economics, and their application to business decision making and to business education, as well as to public policy.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Notes

  • Barnidge, Tom, 2012. “UC Berkeley Professor Was Slow to Warm Up to Climate Change,” San Jose Mercury News, August 13.

    Google Scholar 

  • Barrett, Paul, 2012. “Weather on Steroids Is Global Warming, Stupid.” Bloomberg, November 1. http://www.bloomberg.com/news/2012-11-01/weather-on-steroids-is-global-warming-stupid-paul-barrett.html

    Google Scholar 

  • Best, George, 2009. “Discovering Internet Marketing: A Funny Thing Happened On My Way To Bankruptcy…,” Best Marketing Profit$. http://www.bestmarketingprofits.com/discoveringinternetmarketing.html.

    Google Scholar 

  • Davenport, Coral, 2014. “Justices Back Rule Limiting Coal Pollution,” The New York Times, April 29. http://www.nytimes.com/2014/04/30/us/politics/supreme-court-backs-epa-coal-pollution-rules.html?_r=0

    Google Scholar 

  • De Bondt, Werner and Richard Thaler, 1985. “Does the Stock Market Overreact?” Journal of Finance, 40, 793–805.

    Article  Google Scholar 

  • Eilperin, Judith, 2012. “Book Review: Michael Mann’s ‘The Hockey Stick and the Climate Wars’,” Washington Post, May 25. http://www.washingtonpost.com/entertainment/books/book-review-michael-manns-the-hockey-stick-and-the-climate-wars/2012/05/25/gJQAIYzQqU_story.html

    Google Scholar 

  • Friedman, Milton and Leonard J. Savage, 1948. “The Utility Analysis of Choices Involving Risk,” Journal of Political Economy, 56, 279–304.

    Article  Google Scholar 

  • Gigerenzer, Gerd, 2008. “Why Heuristics Work,” Perspectives on Psychological Science, 3(1), 20–29.

    Article  Google Scholar 

  • Goodman, Amy, 2012. “Climate Skeptic, Koch-Funded Scientist Richard Muller Admits Global Warming Real & Humans the Cause,” Democracy Now, August 2. http://www.democracynow.org/2012/8/2/climate_skeptic_koch_funded_scientist_richard

    Google Scholar 

  • Griffin, Dale and Amos Tversky, 1992. “The Weighing of Evidence and the Determinants of Confidence,” Cognitive Psychology, 24, 411–435.

    Article  Google Scholar 

  • Grynbaum, Michael, 2014. “New York’s Ban on Big Sodas Is Rejected by Final Court,” The New York Times, June 26. http://www.nytimes.com/2014/06/27/nyregion/city-loses-final-appeal-on-limiting-sales-of-large-sodas.html?_r=0.

    Google Scholar 

  • Haidt, Jonathan, 2006. The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom. New York: Basic Books.

    Google Scholar 

  • Hansen, J., D. Johnson, A. Lacis, S. Lebedeff, P. Lee, D. Rind, G. Russell, 1981. “Climate Impact of Increasing Atmospheric Carbon Dioxide,” Science, 28 August, 213(4511), 957–966.

    Article  Google Scholar 

  • Hansen, J., I. Fung, A. Lacis, D. Rind, S. Lebedeff, R. Ruedy, G. Russell, and P. Stone 1988. Global Climate Changes as Forecast by Goddard Institute for Space Studies Three-Dimensional Model. Journal of Geophysical Research, 93, 9341–9364.

    Article  Google Scholar 

  • Hansen, James, 2011. TED talk, Available at http://www.youtube.com/watch?v=fWInyaMWBY8.

    Google Scholar 

  • Hansen, J., Mki. Sato, and R. Ruedy, 2012. “Perception of Climate Change,” Proceedings of the National Academy of Sciences, in press. Early draft posted as “Public perception of climate change and the new climate dice,” arXiv.org:1204. 1286.

    Google Scholar 

  • Hare, Todd, Colin Camerer, and Antonio Rangel, 2009. “Self-Control in Decision-Making Involves Modulation of the vmPFC Valuation System,” Science, May 1, 324(5927) 646–648.

    Article  Google Scholar 

  • Heath, Chip and Dan Heath, 2010. Switch: How to Change Things When Change is Hard, New York: Broadway Books.

    Google Scholar 

  • Herbert, Joe and John Coates, 2008, “Endogenous Steroids and Financial Risk Taking on a London Trading Floor,” Proceedings of the National Academy of Sciences, April 22, 105(16), 6167–6172.

    Article  Google Scholar 

  • Horsley, Scott, 2006. “U.S. Military Works with Service Members on Financial Discipline,” National Public Radio, November 10, 2006. http://www.npr.org/templates/story/story.php?storyId=6466895

    Google Scholar 

  • Intergovernmental Panel on Climate Change, 2001. Third Assessment Report, Cambridge, United Kingdom and New York, NY: Cambridge University Press, USA.

    Google Scholar 

  • Intergovernmental Panel on Climate Change, 2007. Fourth Assessment Report, Cambridge, United Kingdom and New York, NY: Cambridge University Press, USA.

    Google Scholar 

  • Just, David, and Brian Wansink, 2009. “Smarter Lunchrooms: Using Behavioral Economics to Improve Meal Selection,” Choices: The Magazine of Food, Farm, and Resource Issues, 24(3), http://www.choicesmagazine.org/magazine/article.php?article=87

    Google Scholar 

  • Kahneman, Daniel, Paul Slovic, and Amos Tversky, 1982. Judgment Under Uncertainty: Heuristics and Biases. Cambridge: Cambridge University Press

    Book  Google Scholar 

  • Kahneman, Daniel and Amos Tversky, 1979. “Prospect Theory: An Analysis of Decision Making Under Risk,” Econometrica, 7(2) 263–291.

    Article  Google Scholar 

  • Kahneman, Daniel, 2011. Thinking, Fast and Slow, New York: Farrar, Straus, and Giroux.

    Google Scholar 

  • Keynes, John Maynard, 1936, reprinted in 1967. The General Theory of Employment, Interest, and Money. London: Macmillan.

    Google Scholar 

  • Knutson, Brian, Camelia Kuhnen, G. Elliott Wimmer, and Piotr Winkielman, 2008. “Nucleus Accumbens Activation Mediates the Influence of Reward Cues on Financial Risk-taking,” NeuroReport, 19, 509–513.

    Article  Google Scholar 

  • Kumar, Alok, 2009, “Who Gambles in the Stock Market?,” Journal of Finance, 64, 1889–1933.

    Article  Google Scholar 

  • Lichter, S. Robert, 2009. “What Scientists Really Think About Global Warming,” Forbes magazine, December 19. http://www.forbes.com/2009/12/19/climategate-copenhagen-science-opinions-contributors-s-robert-lichter.html

    Google Scholar 

  • Luntz, Frank, 2007. Words That Work: It’s Not What You Say, It’s What People Hear. New York: Hyperion.

    Google Scholar 

  • Lusardi, A., 2010. “Americans’ Financial Capability: Report Prepared for the Financial Crisis Inquiry Commission,” Working paper Dartmouth College and NBER. The findings appear in “Financial Capability in the United States,” FINRA Investor Education Foundation, December 2009.

    Google Scholar 

  • Mann, Michael, 2012. The Hockey Stick and the Climate Wars: Dispatches from the Front Lines, New York: Columbia University Press.

    Book  Google Scholar 

  • Manne, Robert, 2012. “A Dark Victory: How Vested Interests Defeated Climate Science,” The Monthly, August. http://www.themonthly.com.au/how-vested-interests-defeated-climate-science-dark-victory-robert-manne-5853

    Google Scholar 

  • Markowitz, Harry, 1952. “The Utility of Wealth,” Journal of Political Economy, 60, 151–158.

    Article  Google Scholar 

  • McClure, Samuel, David Laibson, George Loewenstein and Jonathan Cohen. 2004. “Separate Neural Systems Value Immediate and Delayed Monetary Rewards.” Science, 306, 503–507.

    Article  Google Scholar 

  • McIntyre, Stephen and Ross McKitrick, 2005. “Hockey Sticks, Principal Components and Spurious Significance,” Geophysical Research Letters, 32(3), L03710 10.1029/2004GL021750 12.

    Google Scholar 

  • Medina, John, 2008. Brain Rules: 12 Principles for Surviving and Thriving at Work, Home, and School, Seattle: Pear Press.

    Google Scholar 

  • Monte, Liz, 2008. “Portion Size, Then vs. Now,” Blog, Available at http://www.divinecaroline.com/22177/49492-portion-size-vs-now.

    Google Scholar 

  • Munnell, Alicia, Anthony Webb, and Francesca Golub-Sass, 2009. “The National Retirement Risk Index: After the Crash,” Center for Retirement Research at Boston College, October, 9–22.

    Google Scholar 

  • National Center for Health Statistics Data Brief No. 82, January 2012.

    Google Scholar 

  • National Science Foundation, Office of Inspector General Office of Investigations, 2011. “Close Out Memorandum,” Case Number: A09120086.

    Google Scholar 

  • Puri, M. and D. Robinson (2007), “Optimism and Economic Choice,” Journal of Financial Economics, 86, 71–99.

    Article  Google Scholar 

  • Rivlin, Gary, 2010. Broke, USA: From Pawnshops to Poverty, Inc.—How the Working Poor Became Big Business, New York: HarperBusiness.

    Google Scholar 

  • Robert Wood Johnson Foundation, 2013. “F as in Fat: How Obesity Threatens America’s Future,” http://www.fasinfat.org/.

    Google Scholar 

  • Rust, James, 2012. “Reply to ‘A Dark Victory: How Vested Interests Defeated Climate Science’.” http://blog.heartland.org/2012/08/reply-to-a-dark-victory-how-vested-interests-defeated-climate-science/

    Google Scholar 

  • Shefrin, Hersh and Christina Nicols, 2014. “Credit Card Behavior, Financial Style, and Heuristics,” Journal of Business Research, 67(8), 1679–1687.

    Article  Google Scholar 

  • Shefrin, Hersh and Meir Statman, 2000. “Behavioral Portfolio Theory,” Journal of Financial and Quantitative Analysis, 35, 127–151.

    Article  Google Scholar 

  • Shefrin, Hersh and Richard Thaler, 1988. “The Behavioral Life Cycle Hypothesis,” Economic Inquiry, XXIV, 609–643.

    Article  Google Scholar 

  • Shefrin, Hersh, 2008. Ending the Management Illusion: How to Drive Business Results Using the Principles of Behavioral Finance, New York: McGraw-Hill.

    Google Scholar 

  • Silver-Greenberg, Jessica, 2013. “Major Banks Aid in Payday Loans Banned By States,” The New York Times, February 24.

    Google Scholar 

  • Smith, Nicholas and Anthony Leiserowitz, 2014. “The Role of Emotion in Global Warming Policy Support and Opposition,” Risk Analysis, 34(5), 937–948.

    Article  Google Scholar 

  • Sreenivasan, Hari, 2012. “James Hansen: Extreme Heat Events Connected to Climate Change,” PBS Newshour interview, August 4. http://www.pbs.org/newshour/rundown/2012/08/james-hansen-extreme-heat-events-connected-to-climate-change.html

    Google Scholar 

  • Surowiecki, James, 2012. “Downsizing Supersize,” The New Yorker, August 13. http://www.newyorker.com/talk/financial/2012/08/13/120813ta_talk_surowiecki?mobify=0

    Google Scholar 

  • Thaler, Richard and Cass Sunstein, 2008. Nudge: Improving Decisions About Health, Wealth, and Happiness, New Haven: Yale University Press.

    Google Scholar 

  • Thaler, Richard and Shlomo Benartzi, 2004. “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving,” Journal of Political Economy, 112(1), pt. 2, S164–187.

    Article  Google Scholar 

  • Thaler, Richard, 2012. “Watching Behavior before Writing the Rules,” The New York Times, July 7, available at http://www.nytimes.com/2012/07/08/business/behavioral-science-can-help-guide-policy-economic-view.html?pagewanted=all.

    Google Scholar 

  • Thaler, Richard, and Hersh Shefrin, 1981. “An Economic Theory of Self Control,” Journal of Political Economy, v89(2), April, 392–406.

    Article  Google Scholar 

  • Wallace, William, 2010. Remarks at Chase Media Lunch, May 11, 2010, New York.

    Google Scholar 

  • Walsh, Bryan, 2012. “Outsmarting The Surge,” Time magazine, November 12. http://www.time.com/time/magazine/article/0,9171,2128304,00.html

    Google Scholar 

  • Warren, Elizabeth, 2004. “Secret History of the Credit Card—Interviews,” Frontline PBS, Available at http://www.pbs.org/wgbh/pages/frontline/shows/credit/interviews/warren.html.

    Google Scholar 

  • Weinstein, Neil, 1980. “Unrealistic Optimism about Future Life Events,” Journal of Personality and Social Psychology, 39(5), 806–820.

    Article  Google Scholar 

  • Yale Project on Climate Change Communication, 2014. Politics & Global Warming, April.

    Google Scholar 

  • Young, Lisa and Marion Nestle, 2002. “The Contribution of Expanding Portion Sizes to the US Obesity Epidemic,” American Journal of Public Health, February 2002, 92(2), 246–249.

    Article  Google Scholar 

Download references

Authors
  1. Hersh Shefrin
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Albert Erisman David Gautschi

Copyright information

© 2015 Albert Erisman and David Gautschi

About this chapter

Cite this chapter

Shefrin, H. (2015). Behavioral Economics and Business. In: Erisman, A., Gautschi, D. (eds) The Purpose of Business. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137503244_9

Download citation

Publish with us

Policies and ethics

Search

Navigation