Abstract

Standard neoclassical analysis assumes equilibrium among economic agents who maximize preferences based on material self-interest. Behavioral economics is concerned with systematic deviations from standard neoclassical analysis, so one can say that it has three main branches. The first branch, exemplified in learning or adaptive processes, relaxes the assumption that the economy is always in equilibrium. The second branch, exemplified in the biases and anomalies literature, relaxes the assumption of maximization. Although there is much to say about these matters (some of it contained elsewhere in this volume), it can be argued that behavior in these branches often is transient. People usually improve their choices once they become aware of substantially better alternatives, and many economic processes tend towards equilibrium, at least under favorable circumstances.