Introduction Behavioral Economy

<p>This book indicates cases studies to explain what differences are between behavioral economic theory and traditional economic theory to explain social change.</p><p>Traditional Economic Theory Limitations&nbsp;particularly classical and neoclassical economics are based on the assumption of rational agents who make decisions solely based on utility maximization.&nbsp;Rationality Assumption: The assumption that all individuals are perfectly rational is frequently contradicted by real-world behaviors.&nbsp;Static Models: Traditional models tend to be static and do not account for the dynamic nature of human behavior or the influence of changing social contexts.&nbsp;Neglect of Psychological Factors: such as heuristics (mental shortcuts) framing effects (how choices are presented) and loss aversion (the tendency to prefer avoiding losses over acquiring equivalent gains).</p><p>Behavioral Economics Insight. Cognitive Biases: Behavioral economics recognizes that people often rely on cognitive shortcuts that can lead to systematic errors in judgment and decision-making. For example confirmation bias may cause individuals to favor information that confirms their pre-existing beliefs while ignoring contradictory evidence.</p><p>Emotional Factors: Emotions play a critical role in decision-making processes. Behavioral economists explore how feelings like fear or happiness can impact choices leading to outcomes that deviate from what would be predicted by rational models.</p><p><br/><br/></p>