Behavioral economics uses insights from human psychology to investigate how individuals actually make decisions. In contrast to neoclassical economics theory, which generally posits that individuals are rational decision makers who are capable of maximizing personal welfare, behavioral economics theorists build models of economic decision making that take account of human errors and limitations. The work of early behavioral economics theorists such as Herbert Simon, Daniel Kahneman, and Amos Tversky has applicability for work in business ethics.

Key Ideas from Behavioral Economics and their Applicability to Business Ethics

Three key ideas from behavioral economics are helpful for the study of business ethics. Bounded rationality captures the idea that human beings have limited cognitive abilities that inhibit their abilities to make optimal decisions. Herbert Simon argued that bounded rationality ...

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