Behavioral economic approaches towards irrationality and manipulation with a basic application to a neoclassical economic model

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This thesis aims to incorporate the seemingly irrational behavior of humans into neoclassical economic models, enhancing their realism. It seeks to determine the extent of human irrationality and its implications, as well as how easily and through what means individuals can be manipulated. To achieve this, the study examines these behavioral traits from a behavioral economics perspective. Insights from behavioral economics and psychology will be integrated into neoclassical models, particularly focusing on the utility function—both with and without uncertainty—and the discounted utility model for intertemporal choices. The primary goal is not to create a readily applicable model but to demonstrate the significant impact that including such phenomena can have on economic models. By pursuing more realistic assumptions, the thesis aims to provide a comprehensive overview of the current state of research in this area.