Introduction to Behavioral Economics
Written by Megna Yadlapalli | Proofread by Yasmin Uzykanova
Behavioral Economics refers to the study of actual human conduct, which indicates that humans don’t always make ideal or logical choices,( assumed by neoclassical economists), even if they possess the resources to do so. Common yet intriguing areas such as Gambling Behavior are studied in this section of economics.
Behavioral Economics indulges in Statistics, Probability, Psychology, Business, and a lot more. In simple words, it’s the study of consumer behavior, under the assumption that behavior isn’t all that simple. Further concept covers the role of Adam Smith, Tversky, and Kahneman will be studied.
The base of behavioral economics revolves around the Nudge Theory. The theory suggests that small changes also known as “nudges”, influence consumer’s behavior- usually in positive ways without restricting their options. An example of this could be healthier food located in prominent locations of the cafeteria, making the more nutritious food more accessible and appealing to choose from, compared to relatively unhealthy food. This nudges them to opt for the healthier option without restricting their access to the other options.
Common Terms:
Availability Heuristic: Tendency to rely on easy-to-remember information instead of facts.
Loss Aversion: Tendency to hate losing more than like winning. Not to lose >> Wanting to win.
Bounded rationality: Not making the “right” choice even with the right information. Instinct over facts.
Bounded Self Interest: Choosing to help others although it wouldn’t be an ideal choice for themself.
Bounded Willpower: Short term satisfaction over Long term satisfaction.
Sunk-cost fallacy: Repeatedly investing in a failing project due to previous commitment.
