Neoclassical economics tells us that because both individuals are assumed rational, their regret levels ought to be identical since their economic consequences are identical. Behavioural economists, however, combine psychology with economics, and focus on how real people, with their cognitive biases, actually behave. The friend who just missed the flight does indeed experience greater disappointment than the one who missed the flight by a margin of four hours. Does that make one or the other irrational?
In this episode of BIC Talks, academic, author and corporate executive V Raghunathan and Applied Behavioural Economist Nikhil Ravichandar navigate the journey of such rationality-irrationality arguments, showing why economics shorn of psychology may be incomplete. This conversation is situated around Raghunathan’s book, Irrationally Rational that collates the works of ten Nobel Laureates largely responsible for the rise of behavioural economics, that makes understanding behavioural economics more fun and accessible.