This lecture traces the evolution of behavioral economics, highlighting its roots in classical economic thought and its divergence from the neoclassical model (NM). It begins with Adam Smith’s psychological and moral insights, which emphasized emotions and social behavior—ideas later revived by behavioral economists. The module explains how 20th-century economics shifted toward mathematical rigor, marginalizing psychology until critiques by thinkers like Herbert Simon (bounded rationality) and Kahneman-Tversky (prospect theory) reignited interest in behavioral factors. Key milestones, such as Thaler’s mental accounting, marked the field’s resurgence. Today, behavioral economics integrates psychology to address NM’s anomalies, though debates persist over methods and assumptions. The lecture underscores its growth from fringe critiques to a respected discipline reshaping economic theory.