Behavioural Economics and Development Economics

Behavioural economics incorporates insights from psychology to strengthen the explanatory power of microeconomics. As a result of the rapid expansion of behavioural economics in the recent past, it is increasingly becoming part of mainstream economics and its influence on policy formulation is growing. Most of the insights from behavioural economics are universal hence they are also relevant for development economics. While the main principles of behavioural development economics are the same as behavioural economics, the unique circumstances and institutional set-ups in developing countries makes it a distinct sub-discipline in its own right. The increasing use of experimental games in development research is one illustration of the influence of behavioural economics on development economics.