Behaviorial Economics
Chapter 8 of the text provided the student with some general themes and ideas that have been developed by the behavioral school of economics. For this paper, the student should take that information as a base of knowledge and expand upon it by researching(at least 5 additional resources) the origins and evolution of the behavioralists. Some of the main items that you should fully address in the paper include:
Leading figures in the school of thought and their hypotheses, theories, works and awards (particularly the nobel prize).
Discussion of divergences from neo-classical theory
Framing and advertising
The endowment effect
Anchor pricing
Implications for business strategy and public policy under neo-classical and behavioralist assumptions(which would require more regulatory involvement?).
Behavioral Economics
Name Course Instructor Date
Leading figures in Behavioral economics
Behavioral economists analyze people's behavior and markets, including limitations to their behavior and the problems derived from these limitations. Herbert Simon was the first behavioral economist to win a Nobel Prize in 1978 for bounded rationality theory (Manvika, 2020). The theory challenges the conventional understanding of human rationality where rationality is bounded by human thinking capacity, information, and time. Gary Becker (1992) proposed “motives and consumer mistakes” (Manvika, 2020). Daniel Kahneman and Amos Tversky (2002) proposed the “prospect theory and anchoring bias, “and Robert J. Shiller (2013) proposed “analysis of asset prices” Richard H. Thaler won a Nobel Prize for his study on behavioral economics (Manvika, 2020). Thaler’s theory of mental accounting proposes that people classify funds differently and are prone to irrational financial decisions on spending and investments. The irrationality of economic agents when making financial decisions
Divergences from neo-classical theory
Behavioral economists seek to deepen our understanding of how traditionally discarded variables ignored in analysis can be explained in economics and finance. To these economists, people can act in ways that are not always rational and based on different biases. The neo-classical theory studies how individuals and firms make decisions and allocate scarce resources. Economic agents are idealized as rational. Rationality means that people individuals always look for their best interests. Neoclassical theorists describe self-interests under the utility function. People rationalize the pleasures that are accessed through the consumption of any good or service.
Framing and advertising
Framing influences economic decisions and choices since cognitive biases are linked to how options are represented negatively or positively (Dobson & Poels, 2020). In other words, the way information is presented choices. Thus, advertisers and marke...