Introduction: Behavioral Industrial Organization

Introduction: Behavioral Industrial Organization Rev Ind Organ (2015) 47:243–245 DOI 10.1007/s11151-015-9475-y 1 2 Michael D. Grubb Victor J. Tremblay Published online: 9 September 2015 Springer Science+Business Media New York 2015 The ‘‘standard’’ model in economics assumes fully rational consumers, input suppliers, and producers. Preferences are stable and defined over a narrow set of outcomes such as quality and quantity consumed, price paid, and risk borne. Other aspects of the environment such as reference points, default options, framing, and ambiguity are omitted. If present, asymmetric information stems from a common prior, and uninformed parties have both rational expectations and the strategic sophistication to make correct inferences from other players’ actions. As the evidence began to show that these assumptions are not always valid, new models were developed, and behavioral economics was born. Behavioral economics uses evidence from psychology and experimental economics to enrich our understanding of decision making. Although economists have long recognized psychological concepts (see Rabin 1998; Angner and Loewenstein 2012 for reviews of the literature), formal analysis began with Simon’s 1955 development of the concept of bounded rationality. Since then, relaxing the assumption of full rationality and standard assumptions on preferences has led to new theoretical models and new insights across many http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Introduction: Behavioral Industrial Organization

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Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Economics / Management Science; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-015-9475-y
Publisher site
See Article on Publisher Site

Abstract

Rev Ind Organ (2015) 47:243–245 DOI 10.1007/s11151-015-9475-y 1 2 Michael D. Grubb Victor J. Tremblay Published online: 9 September 2015 Springer Science+Business Media New York 2015 The ‘‘standard’’ model in economics assumes fully rational consumers, input suppliers, and producers. Preferences are stable and defined over a narrow set of outcomes such as quality and quantity consumed, price paid, and risk borne. Other aspects of the environment such as reference points, default options, framing, and ambiguity are omitted. If present, asymmetric information stems from a common prior, and uninformed parties have both rational expectations and the strategic sophistication to make correct inferences from other players’ actions. As the evidence began to show that these assumptions are not always valid, new models were developed, and behavioral economics was born. Behavioral economics uses evidence from psychology and experimental economics to enrich our understanding of decision making. Although economists have long recognized psychological concepts (see Rabin 1998; Angner and Loewenstein 2012 for reviews of the literature), formal analysis began with Simon’s 1955 development of the concept of bounded rationality. Since then, relaxing the assumption of full rationality and standard assumptions on preferences has led to new theoretical models and new insights across many

Journal

Review of Industrial OrganizationSpringer Journals

Published: Sep 9, 2015

References

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