An Introduction to Cognitive Economics

"Brilliant, original, and packed with fresh ideas. Andrew Caplin has written a manifesto, calling for a 'science of mistakes,' using large data sets to understand what people are doing and why. Full of important findings and terrific insights, Caplin's book paves the way toward a revolution in social science-something we have never seen before."-Cass R. Sunstein, Robert Walmsley University Professor, Harvard University and coauthor of Nudge "One of the most brilliant, creative, and brave thinkers in economics and really all of the social sciences, Andrew Caplin has produced a masterwork in this beautifully written book.... All social scientists should read and ponder this wonderful book."-Steven Durlauf, Frank P. Hixon Distinguished Service Professor and Director of the Stone Center for Research on Wealth Inequality and Mobility, Harris School of Public Policy, University of Chicago This book introduces readers to "cognitive economics," a rapidly emerging interdisciplinary science built on economic, psychological, and data scientific foundations. Throughout the book, economist Andrew Caplin provides new approaches to help scholars collaborate and solve problems that can shape economic outcomes and bridge the gap between theoretical knowledge and the real world. Divided into two parts, the first section brings readers up to speed on economic concepts that underlie decision-making mistakes, such as utility functions, subjective beliefs, and costs of learning. It explores real-world applications, including improvements in legal decision-making, online privacy protection, and optimizing human-AI collaboration. The book discusses the future impact of AI on the workforce and emphasizes the need for decision-making skills and financial literacy in navigating this evolving landscape. In the second section of the book, Caplin addresses the barriers to progress within social sciences, advocating for interdisciplinary cooperation and innovative measurement techniques to advance the field. The book invites readers to contribute to the development of cognitive economics. Whether you are a socially-conscious and hard-working citizen, business leader, scholar, or policymaker, this book will help you understand why cognitive economics matters to you and how you can contribute to its takeoff. This book is open access. Andrew Caplin is Silver Professor of Economics at New York University and a fellow of the Econometric Society.