Principles of Behavioral Economics

People are not perfect calculators — and that is precisely what makes behavioral economics so fascinating. But how can these insights best be taught? In 2015, the economists David Laibson and John A. List formulated six principles that illustrate how people actually make decisions — and how these insights can be integrated into the classroom.

Source: Freepik

Human decisions are often neither fully rational nor purely self-interested. Instead, they are shaped by emotions and limited self-control. That is precisely why behavioral economics provides valuable insights and tools that help people make better decisions.

 

The Six Principles

At the heart of this field are six principles that describe human thinking and behavior in behavioral economics. Here is an overview — closely based on the study by Laibson and List (2015):

  • Principle 1: People try to choose the best possible option, but sometimes fail to do so.
  • Principle 2: People (partly) care about how their situation compares to reference points.
  • Principle 3: People struggle with self-control.
  • Principle 4: In addition to their own benefit, people also care about what others do and achieve.
  • Principle 5: People may behave more rationally in markets, but psychological factors still play a role.
  • Principle 6: People can sometimes make better decisions when given fewer choices, but strict regulations are controversial and often not very successful.

From Theory to Practice

Laibson and List emphasize that these principles of behavioral economics should not remain purely theoretical but should be brought to life. Rather than treating them in isolation, they recommend integrating them into core topics. More than that, they suggest designing a dedicated lesson in which the six principles become tangible — using vivid, real-world examples.

 

Read the full 2015 study as well as all teaching ideas here.

Article by:
Iconomix-Team