Behavioral Contract Theory

Behavioral Contract Theory explores how individuals behave under different contract arrangements, emphasizing psychological and social factors that influence decision-making. Unlike traditional economics, which assumes people act rationally, this theory acknowledges that emotions, trust, and social norms play a significant role. It studies how contracts can be designed to encourage cooperation and ethical behavior by aligning incentives and addressing biases. By understanding these dynamics, researchers aim to create better agreements in various settings, from workplaces to marketplaces, ultimately improving outcomes for all parties involved.