Behavioral economics is a field of study that combines insights from psychology and economics to understand how people make decisions. It recognizes that people often make decisions that are not purely rational, but are influenced by a variety of factors such as emotions, social norms, and cognitive biases.
One key concept in behavioral economics is the idea of bounded rationality, which suggests that people have limited cognitive resources and cannot always make fully informed decisions. This can lead to biases and errors in judgment, such as overconfidence, confirmation bias, and the sunk cost fallacy.
Another important concept is the role of social norms and social influence in decision making. People often conform to the behavior of others, even if it goes against their own preferences or beliefs. This can lead to phenomena such as herd behavior and the bandwagon effect.
Behavioral economics has important implications for a wide range of fields, including public policy, marketing, and finance. By understanding the psychology of decision making, researchers and practitioners can design interventions and strategies that nudge people towards making better choices.« Back to Glossary Index