economics professors often delight in pointing out so-called “irrational behavior” each semester to their new

students, and present economics as a way to become more rational.)

However, a new group of economists, known as behavioral economists, argue that the traditional method omits

something important: people’s state of mind. For example, one can think differently about money if one is

feeling revenge, optimism, or loss. These are not necessarily irrational states of mind, but part of a range of

emotions that can affect anyone on a given day. In addition, actions under these conditions are predictable, if

one better understands the underlying environment. Behavioral economics seeks to enrich our

understanding of decision-making by integrating the insights of psychology into economics. It does this by

investigating how given dollar amounts can mean different things to individuals depending on the situation.
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