Behavioral economics studies the effects of outside factors on economic decisions. These factors can include social and emotional inputs that may not be conducive for making the best decisions. Our own very personal expectations and emotions hamper our ability to use reason when making decisions about money. Social norms also play a role, even when we think we are making the choice based on what we want.
In short, economic decision making isn't always rational. One of the leaders of the field, Dan Ariely, wrote Predictably Irrational: The Hidden Forces That Shape Our Decisions while working at MIT, based on the experiments he conducted as well as those of his colleagues. The book pairs everyday events with the outcomes of these experiments. The results can be comical, because we can often relate to the irrational ways of those who participate in the experiments.
Ariely sees it as a part of the human condition to continually overpay, underestimate and procrastinate, as illogical as all of these things are to any reasonable person. The irrational decisions aren't random, though. They are very predictable in most people, meaning you can learn to overcome these patterns and make better, more reasonable economic choices.
Ariely is best known as the author of two New York Times bestsellers, Predictably Irrational and The Upside of Irrationality. He also serves as a professor of psychology at Duke University. He is known for his work in behavioral economics, including the founding of the Center for Advanced Hindsight at Duke. There he and his colleagues research the psychology behind money-related decisions, rational decision making and even cheating. His latest book is titled The Honest Truth about Dishonesty. Ariely was born in New York City, but raised in Israel.