Behavioral Economics
Behavioral Economics is the study of psychology as it relates to the economic decision-making processes of individuals and institutions. Behavioral economics is often related with normative economics. It draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models.
Behavioral Economics
Definition
Behavioral economics is the study of the relationship between psychology and the economic decision-making processes of individuals and institutions. It explores why people sometimes make irrational decisions and how their behavior deviates from the predictions of traditional economic models.
Origin
Behavioral economics originated in the 1970s, pioneered by psychologist Daniel Kahneman and economist Amos Tversky. Through experimental research, they discovered that people often make decisions influenced by cognitive biases and emotions, which contradicts the rational agent model assumed by traditional economics.
Categories and Characteristics
Behavioral economics can be divided into the following categories:
- Cognitive Biases: Studies common systematic errors in decision-making, such as confirmation bias and anchoring effect.
- Heuristic Decision-Making: Explores the simplified strategies people use when facing complex decisions, such as representativeness heuristic and availability heuristic.
- Emotional Influence: Analyzes how emotions and feelings affect economic decisions, such as loss aversion and emotional accounting.
Specific Cases
Case 1: Loss Aversion
In investment decisions, people are often more sensitive to losses than to gains. For example, investors may be reluctant to sell losing stocks due to fear of loss, even if it might be the most rational choice.
Case 2: Anchoring Effect
In price negotiations, the initial offer often significantly influences the final price. This phenomenon is known as the anchoring effect. For instance, in real estate transactions, the seller's initial price can affect the buyer's offer, even if the initial price is unreasonable.
Common Questions
Question 1: How does behavioral economics differ from traditional economics?
Behavioral economics focuses on human irrationality and psychological factors, whereas traditional economics assumes humans are fully rational.
Question 2: What research methods are used in behavioral economics?
Behavioral economics often uses experiments and field studies to observe and analyze decision-making behavior.
