Behavioral Economics – how the hell does it work? Behavioral 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 behavioral 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 math’s 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 maximize happiness. On the other hand, behavioral economists retain intelligence. A behavioral economist has common sense, and thus, realizes that people are not perfect.
So basically, without any long, really clever words, behavioral economics is arguably the study of economics BUT (and yes, this is a big UT) without assuming that all people are rational, or that all people make rational decisions. People often believe that behavioral 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, behavioral economics studies the effects of social, cognitive and emotional factors on the economic decisions made, and therefore can recognize that no, not all people are sectional. 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 behavioral 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 psychotic weirdoes from birth and there is nothing we can do about that.
However, for the minority of standard economists, they have been indoctrinated by mathematicians and big time money-makers to believe that decisions should be made mathematically and should concern big time money- akin. That’s all good and well, but this isn’t a Ted Hughes novel – we shouldn’t Just run around, embracing our shiny metal bodies, because we’re not made out of metal (unfortunately). We are human beings, and this is what people tend to forget. It is that simple. I’m not a philosopher and hurting your brain isn’t really my main priority at this moment in time.
It’s Just a small reminder (realize now, that common sense is far from common). We are human beings… So doesn’t it seem absurd that the theory of economic decision making often excludes the basic element of human tauter? That isn’t to say that the standard economist doesn’t recognize that we are human, because they do. In fact, they are particularly optimistic about human nature, which is why they preach this idea to humans being perfect. Sadly, humanity d mean perfection, so sometimes, we can be a bit biased, or maybe we can be irrational, but it’s not a crime. All of us are susceptible to bias; it’s hard hitting, but it is undeniable.
For example, we are all victims of availability heuristic when making decisions, but it is natural and therefore we don’t instinctively notice it. Availability heuristic sounds intelligent but it is simply a type of bias. It Just means that we think about the “availability’ of the outcomes, and the probability of events. Availability heuristic is often combined with risk compensation, another type of bias. Risk compensation means people have a tendency to take greater risks, if perceived safety increases. For instance, you wouldn’t think that you’d get caught littering, because you don’t often hear about people being arrested for it.
However, when a fine is implemented (of somewhat EIA,OHO), you may feel reluctant to even drop a sweet wrapper. That’s when you realize, don’t be an absolute imbecile, you were not caught before the fine was established, so you will not get caught now. Because you are okay with the consequence, you litter; you wouldn’t litter in preparation to pay the fine, would you? You’d litter with the confidence that you’d get away Scot-free. Does that make it acceptable? It’s a decision you have made, and behind it there has been some sub- conscious reasoning, however that doesn’t mean it’s a rational choice.
Another fundamental part of decision-making is the “nudge theory’. It is a concept elating to economics in general, but also applies to behavioral science and political theory. The theory proposes that the state should “nudge” people to make better decisions, and this should be done by positive reinforcement and indirect suggestions, and by not making it mandatory enforcement, it is more likely to influence the right motives. It brings about incentives and decision making of groups and individuals alike, at least as effectively – if not more effectively – than direct instruction, legislation, or enforcement.
This theory achieves the goals society wants, UT because it is not a compulsory enforcement, it cannot be perceived as a breach of rights. It proves that with the right psychological impacts, all goals can be achieved. The real goal of behavioral economics is to convince people not to only consider policy when coming to policy. While economics has some values of explanatory power, it is not everything. When it comes to policy, when we want to answer questions that society should care about, we should think about a broader picture which doesn’t Just revolve around this procrastinating object of ‘rationality. Nashua Sahara