Question

Why is behavioral economics important to study? Why or why not? Please explain your position on the relevance of behavioral economics in 300 words.

Answer 1

For an perfect world, people will always make optimal choices which would give them the greatest gain and satisfaction. In economics, the principle of rational choice states that when humans are confronted with different choices under scarcity conditions they will prefer the option that maximizes their individual satisfaction. This theory assumes that people are capable of making reasonable decisions, considering their expectations and constraints, by systematically weighing the costs and benefits of each choice that is available. The final decision that is taken will be the individual's best option.The rational person has self-control and is unmoved by emotions and external influences, and thus decides for himself what is best. Unfortunately, behavioral psychology suggests human beings are not moral and unable to make sound choices.

Behavioral economics draws on psychology and sociology to analyze why people often make irrational choices, and when and how their behavior does not meet economic model predictions. Choices such as how much to pay for a cup of coffee, whether to go to graduate school, whether to follow a healthier lifestyle, how much to contribute to retirement, etc., are the kinds of decisions most people make somewhere in their lives. Behavioral economics seeks to explain why an individual has chosen to go for A, rather than B.

Behavioral economics is the study of the effects psychological influences have on individuals' economic decision-making processes. The value for advertisers of understanding behavioral economics is unmeasurable, because it facilitates a deeper understanding of the human mind. Research shows you 'd be more likely to admire a $10 bottle of wine if someone lied to you and told you it's costing $50, even though the product is actually the same. This may sound weird but we are programmed to consider cheaper products to be inferior, irrespective of the product or service 's real characteristics. To build successful pricing strategies, successful marketers need to profoundly understand the impact that price has on consumers' minds.

Behavioral economics allows one to predict and influence what people will do when and why they often act in counter-intuitive ways, given a context. Without it, any policy-to-business decision to live is more likely to be unsuccessful in inspiring the correct conduct as it is not focused on awareness of how people behave. The application of behavioral economics helps one to make an immense difference in the lives of people.For instance: behavioral economics informs us that changing the preference for organ donation from opting in having to choose to be an organ donor to choosing not to be an organ donor dramatically increases the number of people donating. This is because rather than making an active choice, they tend to go with the default option. This sort of behavioral-based therapy will enhance and even save lives.