Behavioural Economics Introduction

Topics: Economics, Social sciences, Rational choice theory Pages: 3 (938 words) Published: September 10, 2013
Behavioural Economics – how the hell does it work?

Behavioural economics; just to warn you this is a monotonous article. You’ve chosen to read on, so presumably you are interested, or just a very boring person. A common confusion the ignorant adolescent might experience, is the assumption that behavioural economics is related to finance entirely – so yes, this article is a time wasting mechanism, providing the vacant brains of readers with tedious information in relation to the study of maths and numbers (and probably lots of caffeine).

This is not an article concerning traditional economic theory - a theory which, essentially, provides society with the false perception that people are perfectly rational, computationally proficient (one could argue, “robotic”) beings, who make choices in order to maximise happiness. On the other hand, behavioural economists retain intelligence. A behavioural economist has common sense, and thus, realises that people are not perfect. So basically, without any long, really clever words, behavioural economics is arguably the study of economics BUT (and yes, this is a big but) without assuming that all people are rational, or that all people make rational decisions. People often believe that behavioural economics opposes the ideas of traditional economic theory. Well yes, and no. Standard economics proposes the idea that the world we live in is idyllic. This is because people are always making decisions in accordance with good reason, or logic, all the time. However, behavioural economics studies the effects of social, cognitive and emotional factors on the economic decisions made, and therefore can recognise that no, not all people are rational.

It would only be natural for you now to hear the word “why?” beckon and echo from wall to wall. So why is it that a behavioural economist might be able to distinguish the problems behind economic decisions? Well think of it in this way – the vast majority of economists are already...
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