Behavioral Economics: How does behavior affect?
Posted: Thu Dec 05, 2024 10:05 am
Behavioural economics combines elements of economics and psychology to understand how and why people behave the way they do. In effect, it examines the differences between what people "should" do and what they actually do.
What is behavioral economics?
Behavioural economics is based on the observation of human behaviour. Through this observation, it has been shown that there are circumstances and emotions that prevent us from making the decisions considered appropriate, even when we have all the relevant information.
For example, why do people avoid or delay exercise when they know that sport is beneficial? And why do gamblers risk more after winning even though the odds remain the same?
By asking questions like these, the field of behavioral bc data indonesia economics views people as beings subject to emotions and impulsivity. It assumes that they are influenced by their environments and circumstances .
This characterization contrasts with traditional economic models, which treat people as purely rational actors, as if they had perfect self-control and never lost sight of their long-term goals.
behavioral economics
Guide to behavioral economics terms
Behavioral economics works with cognitive biases and other types of terminology:
The availability heuristic
It refers to the idea that people rely on easy-to-remember information, rather than hard facts . For example, people may think that shark or bear attacks are a common cause of death if they are exposed to a lot of information about one of these attacks, even though in reality they rarely occur.
Bounded rationality
People have limited cognitive capacity, information, and time, and they do not always make the "right" decision from an economist's point of view, even if information is available that tells them to take a particular course of action.
Limited self-interest
It is the idea that people are willing to choose a less beneficial outcome for themselves if it means they can support others.
Limited willpower
Even when considering the optimal choice, we tend to choose a short-term benefit even if it jeopardizes a greater long-term benefit.
Loss aversion
We feel more anxious about losing something we own than we feel excited about gaining something new.
The “nudge” in behavioral economics, examples
Richard Thaler, the leading researcher in the field of behavioral economics, has identified the factors that guide people's economic decision-making. In fact, he won the Nobel Prize for this research in 2017.
Thaler observed that he and a friend were willing to skip a sporting event because of a snowstorm because they had been given tickets for free. But if they had bought the tickets themselves, they would have gone, even though the ticket price and road hazard did not change. This is an example of the sunk cost fallacy, which states that people are less willing to give up projects in which they have personally invested.
Thaler is also known for popularizing the concept of “nudge,” which leverages human psychology, mental accounting, and the idea that people treat money differently depending on context . For example, people are more willing to drive across town to save €10 on a €20 purchase than the same €10 on a €1000 purchase, even though the effort expended and the amount of money saved are the same.
What is behavioral economics?
Behavioural economics is based on the observation of human behaviour. Through this observation, it has been shown that there are circumstances and emotions that prevent us from making the decisions considered appropriate, even when we have all the relevant information.
For example, why do people avoid or delay exercise when they know that sport is beneficial? And why do gamblers risk more after winning even though the odds remain the same?
By asking questions like these, the field of behavioral bc data indonesia economics views people as beings subject to emotions and impulsivity. It assumes that they are influenced by their environments and circumstances .
This characterization contrasts with traditional economic models, which treat people as purely rational actors, as if they had perfect self-control and never lost sight of their long-term goals.
behavioral economics
Guide to behavioral economics terms
Behavioral economics works with cognitive biases and other types of terminology:
The availability heuristic
It refers to the idea that people rely on easy-to-remember information, rather than hard facts . For example, people may think that shark or bear attacks are a common cause of death if they are exposed to a lot of information about one of these attacks, even though in reality they rarely occur.
Bounded rationality
People have limited cognitive capacity, information, and time, and they do not always make the "right" decision from an economist's point of view, even if information is available that tells them to take a particular course of action.
Limited self-interest
It is the idea that people are willing to choose a less beneficial outcome for themselves if it means they can support others.
Limited willpower
Even when considering the optimal choice, we tend to choose a short-term benefit even if it jeopardizes a greater long-term benefit.
Loss aversion
We feel more anxious about losing something we own than we feel excited about gaining something new.
The “nudge” in behavioral economics, examples
Richard Thaler, the leading researcher in the field of behavioral economics, has identified the factors that guide people's economic decision-making. In fact, he won the Nobel Prize for this research in 2017.
Thaler observed that he and a friend were willing to skip a sporting event because of a snowstorm because they had been given tickets for free. But if they had bought the tickets themselves, they would have gone, even though the ticket price and road hazard did not change. This is an example of the sunk cost fallacy, which states that people are less willing to give up projects in which they have personally invested.
Thaler is also known for popularizing the concept of “nudge,” which leverages human psychology, mental accounting, and the idea that people treat money differently depending on context . For example, people are more willing to drive across town to save €10 on a €20 purchase than the same €10 on a €1000 purchase, even though the effort expended and the amount of money saved are the same.