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Behavioural Economics: Learning About Its Impact On Economy

By Author: Josh Barett
Total Articles: 11

Behavioural Economics is small but significant part of the vast subject of Economics. It majorly draws conclusions from the psychological and emotional decisions of the individuals or institution as a whole and interprets them into economical aspects. The factors that majorly get affected by the behavioural economy are the market prices, returns and resource allocation. Behavioural models too draw insights from neuroscience, psychology and microeconomic theory. The observations are then applied in the diverse areas that include business, medicine, finance, law, science, politics, and others.

Students pursuing Economics can take inspiration for their Economics Assignment from the innumerable books available—that range from Phishing For Phools by Akerlof And Shiller, Outliers: The Story of Success by Malcolm Gladwell, Thinking Fast and Slow by Kahneman, and several others. They can extract major portions of the useful contexts from these written pieces and use them as references in their assignment writing. Doing so would refine your knowledge about the subject to a significant level.

Moving further to the behavioural finances - there are three themes prevalent to it: Heuristics, which includes decisions that are based on the Rule of Thumb rather than logic; Framing, the collection of anecdotes that make the people understand how to respond to events; and Market Inefficiences, which includes mis-pricings and non-rational decision making.

Behavioural Economics is known to modify three unrealistic traits of the human population—unbounded rationality, unbounded selfishness, and unbounded willpower.

Renowned economists such as Adam Smith and Jeremy Bentham started proposing the idea of psychological aspects of an individual’s behaviour that could affect an economy as a whole if considered at a larger level. Behavioural finance is another term that is important in economics. It became successful due to the presence of high quality data collected from market hypothesis which could be used to make sharp predictions.

Furthermore, Finance models that use money management like Thaler’s Model of price and stock image coefficient; Behavioural game theory used to analyse strategic behaviour; labour supply and demand, and Evolutionary Psychology contribute to the applied issues of the Behavioural Economics.

A significant example of Behavioural Economics can be seen in the share markets where human conduct seems to be similar during the crises and sudden hikes. Stock holders seem to figure out something new for themselves which results in quantitative and qualitative changes in the behaviour. It explores the reasons behind the irrational decisions taken by the people sometimes and why they do not work in accordance with the proposed economic models.

Economics is that secret weapon that is used to tackle a diverse range of problems that include bigger issues like international financial crisis, etc. It uses mathematical and statistical skills that involve solving troubles of the real world. Therefore, students studying Economics should make themselves familiar with these two aspects thoroughly.

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