The Psychology of Economics

The psychology of economics explores how human thoughts, emotions, and behaviors influence economic decisions. Unlike traditional economics, which often assumes people act rationally to maximize wealth, behavioral economics recognizes that habits, biases, and feelings shape choices—sometimes leading to inconsistent or irrational actions. For example, people might overvalue immediate rewards over long-term gains or follow social trends rather than what’s logically best. Understanding these psychological factors helps explain market trends, consumer behavior, and policy outcomes, making economic models more accurate and better suited to real-world human behavior.