They make irrational decisions due to their fear of loss, so it’s ethical to help them make better choices.
The perceived fairness of a price can be more important than the actual cost itself. What people are willing to pay depends on their perception of what they should have to pay. People have a hard time paying the right price for things. Therefore, economists can learn more about commerce by studying how people value goods or losses versus gains. If you give someone a certain amount of money, then take it away from them, they will be more upset than if you had not given them the money in the first place. Behavioral economics also shows how the market will reward those who are rational and punish those who aren’t.Įconomists should use survey data and experiments to study how people make economic choices. Traditional economic theory says that people make rational decisions, but behavioral economics shows that this is not true. Behavioral economics is thus the key for better public policy, which has changed the world for the better. The data can then be used to help individuals make better choices. For example, Human misbehavior was responsible for the housing bubble and 2008 financial crisis.īehavioral economists have found that to understand and predict people’s misbehavior, they need to conduct experiments and surveys of real people. In fact, the misbehavior of Humans has a huge impact on finance and government. From a traditional economic perspective, this makes them misbehave.Įconomists used to think that Human misbehavior had little effect on important decisions, but now economists know that this is not true. Humans are irrational and don’t always know what they want or how much they value things. In this vision, people know what they want and how much they value it.īehavioral economics, however, argues that the world is populated not by Econs (economic actors), but by Humans. The traditional economic theory of the 1970s presumed that people made rational decisions. It also explains the author’s role in this process. Misbehaving is a book about how behavioral economics has been developed.
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