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What to Conclude from Psychological Experiments: The Contrasting Cases of Experimental and Behavioral Economics

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  • Floris Heukelom

Abstract

To understand the relationship between experimental and behavioral economics, we need to go back to the late 1970s and early 1980s. In the 1970s, psychologists began conducting new kinds of experiments, the results of which seemed to falsify the assumption of rational individual behavior. This compelled experimental economists to stake out a position for the economics discipline regarding the results. Much to their surprise, their experiments corroborated the results of the psychologists. This led them to completely discard preference theory but at the same time to emphasize the role of the market as the mechanism that rationalizes individual behavior. An initially diverse and unorganized group of financial and other economists drew very different conclusions from these same experimental results. They saw them as proof of observed anomalies in financial markets and hailed Daniel Kahneman and Amos Tversky's prospect theory as the most important candidate for replacing the traditional microeconomic model of human behavior.

Suggested Citation

  • Floris Heukelom, 2011. "What to Conclude from Psychological Experiments: The Contrasting Cases of Experimental and Behavioral Economics," History of Political Economy, Duke University Press, vol. 43(4), pages 649-681, Winter.
  • Handle: RePEc:hop:hopeec:v:43:y:2011:i:4:p:649-681
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    References listed on IDEAS

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    1. Aldrich, John, 2004. "The Discovery of Comparative Advantage," Journal of the History of Economic Thought, Cambridge University Press, pages 379-399.
    2. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    3. Mill, John Stuart, 1874. "Essays on Some Unsettled Questions of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 2, number mill1874.
    4. Maneschi, Andrea, 2004. "The true meaning of David Ricardo's four magic numbers," Journal of International Economics, Elsevier, pages 433-443.
    5. William O. Thweatt, 1976. "James Mill and the Early Development of Comparative Advantage," History of Political Economy, Duke University Press, pages 207-234.
    6. Roy J. Ruffin, 2002. "David Ricardo's Discovery of Comparative Advantage," History of Political Economy, Duke University Press, pages 727-748.
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    Cited by:

    1. Dorian Jullien & Nicolas Vallois, 2012. "A Probabilistic Ghost in the Experimental Machine," GREDEG Working Papers 2012-05, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    2. Floris Heukelom, 2011. "Behavioral Economics," Chapters,in: The Elgar Companion to Recent Economic Methodology, chapter 2 Edward Elgar Publishing.
    3. Petracca, Enrico, 2015. "A tale of paradigm clash: Simon, situated cognition and the interpretation of bounded rationality," MPRA Paper 64517, University Library of Munich, Germany.
    4. Dorian Jullien, 2013. "Asian Disease-type of Framing of Outcomes as an Historical Curiosity," GREDEG Working Papers 2013-47, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.

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