Economists have long aimed to understand the
reasons why some countries or populations remain poor while other countries
evolved into what we now see in the more fortunate parts of our planet. In
previous decades and years the research shifted its focus from macroeconomic
theories of growth (or causes of its absence) to more humble microeconomic
foundations. In these days, findings from experimental and behavioral economics
are widely used in designing development projects in poorest parts of the world.
Behavioral economics is a discipline at the intersection of psychology
and economics. The standard economic theory usually assumes that people are
rational and selfish. Economic models and predictions are based on these
assumptions. Behavioral economics studies in detail how individuals and
institutions make their everyday-life choices, with a focus on bounded
rationality, the role of emotions and social factors in decision making. Its
goal is to better understand determinants of human choices, to be able to model
them and therefore to provide more accurate roots for both the economic theory
and policy design.
Economists typically rely on observational data regarding economic growth, unemployment, consumption choices etc. But using such data, it is hard to distinguish between correlation, i.e. when two events occur at the same time, and causation, meaning one event causing the other.
To identify causation you need to know what would have happened in the absence of, say, a change in a particular policy. Comparison of a randomly selected group of people who are subject to the policy and a group, which is not helps to separate all other effects except for the one you are interested in. Experiments similar to medicine or physics were previously thought inapplicable in social sciences. Experimental economics attempts to change the view. It designs simple experiments in controlled environment of a computer lab or in a real-life situation.
The theory in textbook economics usually assumes that people are
behaving as self-interested individuals without taking into account the wishes
and preferences of others. However, recent research finds ever more evidence
that individuals are making their decisions while considering the impact of
their behavior on others' wellbeing. Such preferences are called social
preferences and include e.g. altruism, reciprocity, inequity aversion,
spitefulness and other.