Behavioral Economics is directed at comprehending the decision of economic agents, such as an individual or organization, who are not always utility maximizers and displays the fact that agents may have other concerns other than economic gain. This paper explains and displays the behavior of consumers and producers who are not necessarily financial maximizers in different situations, as well as why people make decisions irrationally.
Explanation of the Article.
The theory of behavioral economics explains why economic agents often make decisions that are not in their best interests. An example would be how gamblers at a casino are willing to keep betting even while expecting to lose. Victims who feel they've been treated poorly exact their revenge though doing so hurts their own interests. Facts such as these make you think about how different it is than the standard model of the human classical economics and neoclassical economics that have been used for decades. The stereotypical human is expected to use logical and rational self-serving decisions that weigh the costs and benefits to maximize profit for himself. Based on the law of economics, humans are also supposed to be and expected to be intelligent and selfish individuals who are disciplined and are unswayed by feelings and strong emotions. It is obviously evident that such an individual does not exist in the real world. When looking at actual human beings, we can observe that their behavior is quite irrational, sometimes selfless, and even self-sabotaging at times when we choose incorrectly. Psychology plays a big role in decision making for many people as emotions and passions clash and create conflicts. (Lambert, 2006).
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Behavioral Economics Research.
Borrowing aspects of both psychology and economics, the current belief of behavioral economics is that emotional biases often avert people from making rational decisions, despite their best efforts.
