A Challenge to Homo Economicus: Behavioral Economics

Abstract

Neoclassical economics is the mainstream economic paradigm of the present era and has certain assumptions such as rationality, perfect knowledge and unique equilibrium. In this regard, homo economicus, namely rational economic man is the main agent of mainstream economics. However, this main agent has aspects that are inconsistent with reality. In other words, decision units are likely to be irrational in the real word because individuals are emotional and social beings. Considering that this conception of rationality contradicts with the instability of economies and crises that have happened, it seems that the dominant economic view cannot exactly explain current events. This chapter questions the concept of homo economicus, the compatibility of homo economicus with homo sapiens and attempts to reveal the shortcomings of the dominant view. It substantially tries to explore why behavioral economics is necessary and how behavioral economics can make up for the shortcomings of the mainstream economic paradigm by the help of its branches; experimental economics and neuroeconomics. © 2020, IGI Global. © 2020 by IGI Global.