Abstract

I explore the evolution of behavioral economics, from a multidisciplinary rational agent or bounded rationality approach that was pioneered and championed by Herbert Simon (1959, 1978, 1987) from the 1950s, to the heuristics and biases approach that currently dominates the field. I argue that although the heuristics and biases approach pioneered by Kahneman and Tversky (1979; Kahneman, 2003, 2011; Tversky and Kahneman, 1981) has made significant contributions to the field, the bounded rationality approach holds most promise because of its focus on methodology and related causal analyses and modeling, smart decision-makers, capabilities, and institutional design. ¹