Behavioral Economics

Citation

Cartwright, E. (2024). Behavioral Economics (4th ed.). Routledge.

Chapter Summary

The fourth edition has eleven chapters in four parts and about 610 pages, and belongs to the Routledge Advanced Texts in Economics and Finance series. Routledge describes it as introducing the key results and insights of behavioral economics to students, explaining ideas such as mental accounting, prospect theory, present bias, inequality aversion and learning in detail, and applying them in settings that include auctions, stock market crashes, charitable donations and health care. The publisher recommends it for advanced undergraduate and graduate students.

Chapter 1: An Introduction to Behavioral Economics

Part I, "Introduction", consists of this single opening chapter, which sets out what behavioral economics is and prepares the ground for the topics that follow.

Chapters 2–7: Simple Heuristics for Complex Choices; Choice with Risk; Choosing When to Act; Learning from New Information; Interacting with Others; Social Preferences

Part II, "Economic behavior", is the core of the book and takes up six areas of individual and interactive behaviour. It begins with the simple rules of thumb people use for complex decisions, then treats choice when outcomes are risky and choice over time ("choosing when to act"). It continues with how people learn from new information, and ends with two chapters on interaction: how people behave when dealing with others, and social preferences.

Chapters 8–9: Evolution and Culture; Neuroeconomics

Part III, "Origins of behavior", asks where behavioral patterns come from, first through evolution and culture and then through neuroeconomics, the study of how decisions relate to brain activity.

Chapters 10–11: Happiness and Utility; Policy and Behavior

Part IV, "Welfare and policy", looks at what makes people happy and how that relates to the economist's notion of utility, and then at the implications of behavioral findings for policy. The publisher says the book considers how people might be nudged to be happier.

Key Concepts

Part I and Part II: Introduction and Economic Behavior (Chapters 1–7)

• Heuristics: simple rules of thumb for making complex choices.
• Prospect theory: a model of choice under risk in which outcomes are judged as gains and losses relative to a reference point.
• Present bias: a tendency to give disproportionate weight to the present in choices over time.
• Mental accounting: treating money and decisions as belonging to separate mental accounts.
• Learning: how beliefs and behaviour change as new information arrives.
• Inequality aversion and social preferences: concern for fairness and for other people's outcomes.

Part III: Origins of Behavior (Chapters 8–9)

• Evolution and culture: explanations of behaviour that rest on evolutionary and cultural origins.
• Neuroeconomics: evidence about the brain used to understand economic decisions.

Part IV: Welfare and Policy (Chapters 10–11)

• Happiness and utility: measures of well-being and their relation to utility.
• Nudging: steering behaviour through the design of choices, discussed in relation to making people happier.

Critical Analysis

Strengths

• A full arc from behaviour to policy. The four parts run from the foundations of individual choice through the origins of behaviour to welfare and policy, with chapters on happiness and on policy.
• Wide range of applications. The publisher lists auctions, stock market crashes, charitable donations and health care among the settings used to show why behavioral economics matters.
• Origins of behaviour as a separate part. Evolution, culture and neuroeconomics are given their own part, so the reader sees explanations for behavioral patterns as well as descriptions of them.
• Updated for the fourth edition. The publisher reports expanded and updated coverage of fraud and cybercrime, cryptocurrency, public health messaging and the COVID-19 pandemic, and a companion website with new questions and worked examples.

Limitations

• A text for upper-level students. It is addressed to advanced undergraduate and graduate students, so it is less suited to a first look at the field than a short introduction.
• Few, broad chapters. Eleven chapters for roughly 610 pages means chapters are long and each covers a wide area, and the contents list gives no sign of which parts are optional, so a reader or course must make selections.

Where It Fits in the Course

Cartwright and Wilkinson and Klaes's An Introduction to Behavioral Economics are the two main textbooks at this level. Cartwright sets out the key results and insights of the field, explaining each idea in detail and applying it in a range of settings, and it has separate chapters on learning, evolution and culture, neuroeconomics, happiness and utility, and policy. Wilkinson and Klaes gives two chapters to choice over time and a chapter to mental accounting, and has no chapter devoted to policy. A reader wanting the welfare and policy side should therefore lean on Cartwright.

Michelle Baddeley's Behavioural Economics: A Very Short Introduction and Richard Thaler's Misbehaving are gentler starting points, the first a compact overview and the second a first-person account of how the field developed. Camerer, Loewenstein and Rabin's Advances in Behavioral Economics is an edited collection of influential journal articles that suits readers moving to the original literature, and Sanjit Dhami's The Foundations of Behavioral Economic Analysis is a graduate treatise offering a systematic formal treatment.

How to Use This Book

Routledge targets advanced undergraduate and graduate students. Intermediate microeconomics is a sensible base, and some familiarity with game theory helps with the chapters on interacting with others and on social preferences.

A practical plan:

• Core: Chapter 1, then Chapters 2 to 4 on heuristics, risk and choice over time. These cover the standard departures from the rational-choice model.
• Next: Chapters 5 to 7 on learning, interaction and social preferences, which extend the individual-choice topics to settings with other people.
• Choose by interest: Part III (Chapters 8 and 9) for readers drawn to evolutionary and neuroscientific explanations; Part IV (Chapters 10 and 11) for courses on well-being, public policy or nudging.

Use the companion website's questions and worked examples after each chapter, and link the applications the publisher names, such as auctions, stock markets and health care, back to the models in Part II. For the latest-edition topics such as cryptocurrency and public health messaging, read the relevant sections for the application rather than for the underlying theory.