Methodological challenges in Behavioural Economics: Towards a more holistic and empirically rooted economic science

Abstract

This paper is a methodological one that addresses some of the shortcomings with contemporary behavioural economics, pioneered by Kahneman and Tversky. The latter relates to the heuristics and biases narrative that focuses on day-to-day choice behavior and individuals persistently deviating from neoclassical computationally intensive decision-making norms. I place this approach in the context of other alternative and sometimes complimentary perspectives on behavioural economics inclusive the fast and frugal approach and Simon’s bounded rationality narrative. I argue for a more holistic empirical grounded behavioural economics that is more focused on better understanding the decision-making environment and individuals’ decision-making capabilities and preferences that drive real work decision-making. This approach taps into the contributions of pioneers of behavioural economics and also compliments price theory and revises but does not abandon the notion of smart or intelligent decision-makers. It also allows for better understanding how individual freedom and empowerment is critical to optimal and welfare improving decision-making. Better understanding the over-arching decision-making environment can help fill the gaps in the choice literature with important implications for economic prediction and public policy.