What is behavioural economics: a reality-based approach to economic analysis

This article critically explores and interrogates the different core perspectives of behavioural economics. Behavioural economics is often framed by the heuristics-and-biases narrative, which views deviations from neoclassical norms as evidence of inherent irrationality. This perspective assumes individuals are intrinsically biased and error prone. In contrast, the bounded rationality approach rejects neoclassical norms as the gold standard and emphasises a more nuanced, multidisciplinary understanding of real-world decision-making. It assumes individuals are generally rational, using contextually appropriate strategies that may diverge from neoclassical expectations. Key determinants of behaviour include the decision environment, individual capabilities, and socio-economic constraints - not internal flaws. Viewing biases as hardwired misleads analysis and policy, promoting paternalistic nudges over systemic change in environments, mental models, and power structures.