ABSTRACT

This chapter shows how behavioural economic theories can account for contextual influences on the preferences of agents. The structure of typical behavioural economic theories fits the idea that the goal of behavioural economics is to deidealise economic theory. These theories contain parameters that describe the relevance of certain influences such as loss aversion and inequity-aversion on choice behaviour. Some examples show that behavioural economic theories suggest hypotheses about decision-making behaviour that can be tested in an experimental setting as long as it is clear what the relevant reference point is. The optimisation problems that are formulated by standard economic theories are often so cognitively demanding that one cannot assume that people choose by solving these optimisation problems. Behavioural economists use the deidealisation approach because it offers the possibility of an iterative improvement of economic theory in which the localisation of anomalies of theories and the subsequent modification of the theory is repeated.