Question

Why Behavioral economics is important

Answer 1

Economics is the study of the ways and means in which man makes a living. It considers the social organisation through which people satisfy their wants for scarce goods and services. Scarce goods and services refer to all those thing that we commonly buy for money.

Human beings have many wants. But not all these wants can be satisfied.Neither the goods we want nor the resources required to produce them exist in sufficient quantities to satisfy all our desires. So there is the need for economizing. Economizing means making the most of what we have, by employing scarce resources to satisfy as fully as possible our unlimited wants.

The subject matter of economics can be summarized as production, distribution and consumption Behavioral economics is important here because it relates to the decision making process of the individual.Economic decisions are based not only on "rational" calculations but also on people's reactions and anticipations. In the case of economics, this relates to consumers, workers, investors, entrepreneurs,but also corporate and government decisions.It is essential,in economic analyses, to see how emotions,habits and modes of thinking contribute to the economic uncertainty. Without including psychological factors in its reasoning, economics cannot really describe how the economy works. That is why Behavioral Economics became a crucial academic field in economics.

Behavioral Economics thus draws on psychology and economics to explore why people sometimes make irrational choices. It clearly studies and analyse about the consumer's choice between two goods.Consumers buy or demand goods and services to satisfy their needs,they can satisfy their wants by consuming goods. Consumers have to decide what quantity of a good they should buy at a given price and at a given point of time. In other words, we have to study consumer behavior.

Now all the market strategies are based on this idea and they increase or decrease the introduction of their product according to the strategy.