Behavioural economics is a field of economics which concentrates on the effects that cognitive, psychological, emotional and cultural factors have on the individual economic decisions and how these choices differ from those made by the classical theory.
This discipline is interconnected with other subjects such as psychology, neuroscience ad microeonomic. There are three themes that are prevalent in behavioural economics including heuristics, framing and market inefficiencies. Heuristics means that human makes 90% of their decision adopting rules of thumb or mental shortcuts. Framing refers to the anecdotes and stereotypes that influence the individuals’ decisions. Market inefficiencies including mis-pricing and non-rational decision making.
The aim of the discipline is discovering how people sometimes make irrational decisions, and why these choices do not follow the prediction of the economic models. This trend is explained by the fact that humans are emotional beings whose selections are not in their self-interest.
There are different applications of this subjects such as the behavioural game theory. In this context, the game theory is applied to behavioural economics to experiment and analyse people’s irrational choices. As well as this, the discipline is applied to behavioural finance, which tries to understand why investors make rash choices within a capital market.
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