The role of psychological factors in economic decisions has been recognised since the beginning of economics. Adam Smith, sometimes regarded as the Father of Economics, analysed psychological factors as early as in the 18th century in his book “Theory of Moral Sentiments”.^[6] See Ashraf et al. (2005). And since then, many well-known economists have discussed psychological factors. That said: For a long time, the research has been dominated by assumptions about the economic man. One reason for this was a need to make simplifying assumptions to model the economy as a basis for various calculations. It was actually not until the 1970s and 1980s that behavioural economics research really took off, led by economics prizewinners Daniel Kahneman and Richard Thaler, among others. Simply put, the insights from behavioural economics seize on deviations from the assumptions about the economic man. There are many reviews of behavioural economics research worth reading.^[7] See, for example, Gärdenfors et al. (2017), Royal Swedish Academy of Sciences (2017), Thaler (2018) and DellaVigna (2009) to name a few. In this Economic Commentary, we review some of the findings that we believe may be relevant to the monetary policy analysis and discussion:

• how we view risk and uncertainty – prospect theory
• rules-of-thumb, mental accounting and lack of self-control
• the perception of fairness
• social psychology factors in decision-making, such as conformity and groupthink
• life experiences that influence decisions over a long period of time