Diversity in Economic Decision-making and Behaviour: A New Brief Review

Abstract

Taking into account the relevant literature, it is argued in this review that important advances can be made in the application of decision sciences to economics if greater attention is given to the presence of diversity in the types of economic decisionmaking and behaviour. This is of particular significance for understanding market dynamics. This requires both rational and irrational types of decision-making to be taken into account. A limitation of neoclassical and much mainstream economic theory in its lack of consideration of this diversity and its economic consequences. Different types of rational and irrational choices are specified in this article. Even rational decision-making and behaviour can be quite diverse. Empirical evidence is provided of diversity in economic decision processes and the consequences of this diversity is noted. Most attention is paid to the influence on the dynamics and stability of market systems of the diversity of the beliefs and behaviour of market participants. It is shown how a preponderance of sticky decision-making or restrained reactions in markets can improve the dynamics of their adjustment when market equilibrium alters or a market is disturbed but its equilibrium remains unchanged. It is observed that these reactions can be socially beneficial. Several different restrained forms of decision-making and behaviour are identified which make for stickiness in market behaviour and decision-processes.