Counter to the traditional assumption of neoclassical economics that individuals are rational Homo oeconomici that always seek to maximize their utility and follow their ‘true’ preferences, research in behavioral economics has demonstrated that people's judgments and decisions are often subject to systematic biases and heuristics, and are strongly dependent on the context of the decision. This article briefly reviews the transition of research from neoclassical economics to behavioral economics, and discusses how the latter has influenced research in consumer behavior and consumer policy. In particular, the impacts of key principles are discussed such as status quo bias, the endowment effect, mental accounting and the sunk-cost effect, other heuristics and biases related to availability, salience, the anchoring effect and simplicity rules, as well as the effects of other supposedly irrelevant factors such as music, temperature and physical markers on consumers’ decisions. These principles not only add significantly to research on consumer behavior – they also offer readily available practical implications for consumer policy to nudge behavior in beneficial directions in consumption domains including financial decision making, product choice, healthy eating and sustainable consumption.
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