An introduction to Behavioural Economics
- Behavioural economists question the assumption of traditional economic theory that individuals are rational decision-makers who endeavour to maximise their utility
- It argues that many economic decisions made by an individual are biassed
- It argues that many economic decisions made by an individual are biassed
- Behavioural economics is a field of study that combines elements of psychology and economics to understand how people make decisions and behave in economic contexts
Diagram: Traditional Versus Behavioural Economics
Behavioural economics contrasts traditional economics as it challenge the view that economic agents behave rationally
- Behavioural economics recognises that human decision-making is influenced by cognitive biases, emotions, social, and other psychological factors that can lead to deviations from rational behaviour
- The assumptions of traditional economics regarding decision-making do not hold
- The following limitations mean individuals are unlikely to always make rational decisions
- Bounded rationality
- Bounded self-control
- Biases