💰 Behavioral Economics
From Thaler and Ariely to the paradox of choice: why humans were never rational, how choice architectures guide us without our noticing, and what mental accounting reveals about predictable irrationality.
Modules
Topics
Duration
Level
Learning path map
💡 Critique of Homo Economicus
Thaler, Ariely, and the end of the myth of the perfect rational agent
🏗️ Nudge Theory: Choice Architecture
Defaults, salience, and social proof: how context makes decisions for you
🧮 Mental Accounting and the Paradox of Choice
Why money isn't fungible in the mind and more options paralyze us
Detailed content
The Critique of Homo Economicus
Thaler (2017), Ariely (2008) · 6 topics
What is
Model of classical economics: a perfectly rational agent, with stable preferences, who maximizes utility with complete information. The foundation of neoclassical microeconomics for more than a century.
Why learn
To understand why traditional economic policies fail: they assume a human being who does not exist.
Key concepts
Perfect rationality, expected utility, transitive preferences, complete information.
What is
Thaler showed that people value what they already own more than what they could acquire. A mug you’ve received as a gift is "worth" more than the same mug on the shelf.
Why learn
Explains why people hold on to losing stocks, resist changes in plans, and overvalue their own possessions.
Key concepts
Endowment effect, loss aversion, status quo bias, WTA vs WTP.
What is
The way an option is presented drastically changes the choice. "90% survival" vs. "10% mortality" are identical, but lead to opposite decisions.
Why learn
Framing is the basis of manipulation in marketing, politics, and negotiation. Whoever frames the issue controls it.
Key concepts
Framing effect, gains vs. losses, positive/negative framing, Prospect Theory.
What is
Humans promise their future selves what they don't follow through on in the present. Temporal distance makes commitments seem easy. When the time comes, the present self wins over the future self.
Why learn
Explains procrastination, debt, diet failures, and why private retirement plans need nudges.
Key concepts
Hyperbolic discounting, present bias, planner vs. doer, precommitment.
What is
Ariely (2008) showed that human errors aren’t random: they’re systematically predictable. They can be mapped, studied, and exploited or mitigated. The Economist subscription options experiment proves this.
Why learn
If irrationality is predictable, it can be used both to manipulate and to protect.
Key concepts
Predictable irrationality, the decoy effect, price anchoring, and free as a trigger.
What is
Richard Thaler received the Nobel Prize in Economics in 2017 for incorporating psychologically realistic assumptions into economic theory. His work connects Kahneman, nudges, and public policy.
Why learn
Provide context on how behavioral economics went from academic heresy to a tool of government in less than 20 years.
Key concepts
Behavioral economics, libertarian paternalism, Misbehaving, Econs vs Humans.
Nudge Theory: Choice Architecture
Thaler & Sunstein (2008) · 6 topics
What is
A factor that predictably changes behavior without banning options or significantly changing economic incentives. The decision context profoundly affects the decision.
Why learn
Governments, companies, and digital platforms use nudges. Recognizing them is the first step toward avoiding being guided without your knowledge.
Key concepts
Nudge, choice architecture, choice architect, libertarian paternalism.
What is
The preselected option changes behavior on a mass scale. Organ donation with opt-out vs. opt-in: countries where donation is preselected have 85-99% donors vs. 4-27%.
Why learn
Whoever sets the default controls the outcome. This applies to public policy, software, and digital services.
Key concepts
Default effect, opt-in vs. opt-out, status quo bias, decision inertia.
What is
Three complementary principles: fewer steps = greater uptake (simplification); make the desired option more visible (salience); immediate, tangible consequences (feedback).
Why learn
Together, these three principles explain why long forms fail, why simple menus sell more, and why consumption meters work.
Key concepts
Friction, sludge (anti-nudge), attention economics, feedback loops.
What is
Telling people what most others do influences behavior. UK BIT: "9 out of 10 people in your neighborhood pay their taxes on time" increased tax payments by 15%.
Why learn
Social proof is the most widely replicated nudge in the world and connects behavioral economics with social psychology (Track 2).
Key concepts
Social proof, descriptive vs. injunctive norms, Behavioural Insights Team, EAST framework.
What is
SMarT (Thaler & Benartzi): commit future salary increases to savings. Participation rose from 3.5% to 13.6% in 3 years. Brazil: NudgeRio (IPTU), Nudge//SP.
Why learn
Demonstrates that nudges work at scale, at near-zero cost and with measurable impact.
Key concepts
SMarT, temporal precommitment, Nudge Units, experimental evidence in public policy.
What is
Criticism: disguised manipulation (sludge), limited effectiveness for complex behaviors, ethical questions about who decides what is “best” for whom. Dark nudges in digital design.
Why learn
A nudge is not a panacea. Understanding its limits helps you avoid overestimating it and makes room for complementary solutions.
Key concepts
Sludge, dark nudges, boosts (an alternative), autonomy vs. efficiency, design ethics.
Mental Accounting and the Paradox of Choice
Thaler, Schwartz · 6 topics
What is
We treat money differently depending on its source and destination. R$500 from betting isn't treated like R$500 in salary, even though they're economically identical.
Why learn
Explains why people spend bonuses in ways they would never spend their salaries, and why “mental accounts” lead to poor financial decisions.
Key concepts
Mental accounting, fungibility, separate mental accounts, house money effect.
What is
We create mental “drawers” for different spending categories. “Leisure” money doesn’t mix with “bills.” This violates the economic principle of fungibility and leads to suboptimization.
Why learn
Understanding your mental compartments is the first step toward making more rational financial decisions.
Key concepts
Hedonic editing, sunk cost fallacy, segregation of gains, integration of losses.
What is
Schwartz (2004): more options do not lead to better decisions. The jam study (Iyengar & Lepper): the stand with 24 flavors attracted more visitors but sold 10x less than the stand with 6.
Why learn
In an era of endless options, decision paralysis is an epidemic. Understanding the paradox is essential for design, business, and life.
Key concepts
Choice overload, the paradox of choice, choice paralysis, satisficing vs. maximizing.
What is
More options increase post-decision regret and the perceived opportunity cost. When you choose 1 out of 30, you "lost" 29 alternatives. When you choose 1 out of 3, you lost only 2.
Why learn
Anticipated regret paralyzes decisions, while retrospective regret erodes satisfaction.
Key concepts
Regret aversion, FOMO, counterfactual thinking, psychological opportunity cost.
What is
Schwartz distinguishes two profiles: maximizers (who seek the best possible option and end up dissatisfied) and satisficers (who seek “good enough” and feel satisfied). Maximizers earn more but are less happy.
Why learn
Identifying your profile and adopting satisficing strategies in non-critical areas improves well-being.
Key concepts
Satisficing (Simon), maximizing, good enough, social comparison.
What is
Platforms with huge catalogs invest billions in recommendation algorithms to reduce choice paralysis. Netflix, Spotify, and Amazon are examples of anti-paradox architecture.
Why learn
Connects behavioral economics with digital design and the algorithmic biases of Track 6.
Key concepts
Algorithmic curation, recommendation engines, filter bubbles, reduction of choice set.