Behavioural economics: Classical and modern

Abstract

In this paper, the origins and development of behavioural economics, beginning with the pioneering works of Herbert Simon and Ward Edwards, are traced and (critically) discussed. Two kinds of behavioural economics – classical and modern – are attributed, respectively, to the two pioneers. The mathematical foundations of classical behavioural economics are identified, largely, to be in the theory of computation and computational complexity; the mathematical basis for modern behavioural economics is claimed to be a notion of subjective probability. Individually rational economic theories of behaviour, with attempts to broaden – and deepen – the notion of rationality, challenging its orthodox variants, were decisively influenced by these two mathematical underpinnings.