Behavioural Economics
Behavioral economics is the study of how psychological factors influence people's economic decisions. Unlike traditional economics, which assumes that individuals always act rationally to maximize their benefits, behavioral economics acknowledges that emotions, cognitive biases, and social influences can lead to irrational choices. For example, people might make impulsive purchases or ignore long-term consequences due to fear or optimism. By understanding these behaviors, economists and policymakers can design better strategies to encourage beneficial decisions, such as saving more for retirement or making healthier choices.
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Behavioral economics studies how psychological factors influence economic decisions, often challenging traditional economic theories that assume people act rationally. It examines how emotions, biases, social pressures, and cognitive limitations impact our choices about spending, saving, and investing. For instance, people may struggle to save for retirement despite knowing it's important, due to present bias—favoring immediate rewards over future benefits. By understanding these behaviors, policymakers and businesses can design better strategies to encourage beneficial economic behaviors, such as promoting savings or improving consumer confidence.