Null Model of Agent Behaviour (Behavioural Economics)

This is a quick primer on the ways in which behavioural economics challenges the assumptions the null model of agent behaviour that dominated conventional economics for decades.

The assumption of rationality pervaded standard economic thinking and theory for decades:

1. Agents choose independently
2. An agent has fixed tastes and preferences
3. Gathers complete information on the alternatives
4. Always make optimal choice given his/her preferences

In the new behavioural models, economic agents:

• Have limited computational capacity
• Are influenced by their social networks
• Often act reciprocally
• Lack self control
• Make different choices in hot and cold states
• Often fall back on simple heuristics
• Satisfice rather than maximise
• Are influenced to some extent by persistent cognitive biases