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Rise Of Behavioral Economics And Its Influence On Organizations

 

The origin of Behavioral Economics


Richard Thaler, a professor at the University of Chicago and the Nobel Prize Winner in Economics, has inspired scientists from different fields to change the way we think of human behavior. He is the originator of behavioral economics, a new discipline that incorporates ideas from psychology, judgment, decision-making, and economics to create a more accurate view of human behavior. Among his many achievements has been the creation of behavioral science teams called "nudge units" in public and private organizations around the world. Nudge could solve all sorts of problems that governments and businesses consider important.

Economics differs from other disciplines in that it believes most human behavior can be explained by the assumption that our preferences can be defined as stable and rational over time. Economics has long been at odds with other areas, because it believes that human behavior is beyond question, based on the belief that our decisions can only be explained as immovable and sometimes logical. In countless studies and hundreds of years over, economists have based their economic models on the assumption of perfect rationality, which is the premise that people act rationally and make decisions with the sole purpose of maximizing their benefits.

Examples of real-life experience

Unfortunately, behavioral economics explains that people are not always rational and unable to make good decisions. Based on our own life experience, we tend to be emotional and spontaneous rather than rational. Behavioral economics draws on psychology and economics to explore why people make irrational decisions and why their behavior does not fit the predictions of economic models.

For example, if you want to lose weight using the rational choice theory while knowing the number of calories in edible products, you will preferably choose foods with minimal calories. Behavioral economics, however, says who wants to lose weight, wants to eat healthily, and is coming to an end. Behavior is subject to cognitive biases, emotions, and social influences.

Behavioral economics helps explain why we have corruption in the government, why it is so hard to escape poverty, why politicians are not acting fast enough to address the climate crisis, and why we still have rising inequality. Beyond saving, behavioral economics influences how people make decisions, what they like to do, how they spend time, where they work, and what health-related decisions they make.

Highlight benefits of behavioral benefits

Behavioral economics is trying to change the way economists think about people's perceptions, values, and expressed preferences. It uses psychological experiments to develop a theory of human decision-making that identifies various biases arising from the way people think and feel. Behavioral theory is an emerging class of game theory that applies behavioral economics to game theory by conducting experiments to analyze people's decision-making and irrational decisions.

Behavioral economics is experiencing a golden age. The discipline combines a wide range of insights from the social sciences, including economists who provide powerful analytical tools and rich evidence of real human behavior from other areas of social psychology and sociology. This article examines the development of key behavioral insights: incentives, motivations, and social influences, including social learning, peer pressure, groupthink, heuristic distortions in decision-making, risk, and uncertainty, delays, nudges, and policy tools.

By integrating insights from psychological research into economics relating to human judgment, decision-making, and uncertainty, as illustrated, behavioral economics provides businesses and policymakers with a comprehensive understanding of how real people think, vote, and decide.

A new way to adopt the nudging concept

Nudging is a concept in behavioral science, policy theory, and economics that proposes positive reinforcements and indirect proposals to influence the behavior and decision-making of groups and individuals. Nudging can go from bathroom to boardroom in marketing to improve research, reduce in-store selectivity and transform online shoppers into waffle purchases. Nudging contrasts with other ways of achieving compliance, such as education, legislation, and enforcement. ​​Based on the Nudge Theory, it's possible to affect people's decision-making by altering the environment (also known as the choice architecture). Nudge Theory emphasizes the importance of a person's capacity to feel free to make their own choices and in charge of their own destiny.

Nudges have advanced to the forefront of conversation in behavioral economics, a field of research that combines psychology, economics, and the scientific method of studying human rationality and decision-making. The psychology of Homo economicus - the rational, selfish individual with stable preferences - challenges traditional views of how behavioral change can be achieved through information, persuasion, incentives, or punishment of the individuals concerned. 

Human decisions are influenced by context, including the way decisions are presented to us. Behavior varies in time and space and is subject to cognitive distortions, emotions, and social influences and a rational actor (homo economics or economic man) makes decisions based on available information, such as costs, benefits, preferences, and probabilities of events. Their choices emphasize that nudges are additional data to information about the free market. All function and function well when receiving new information from rational decision-makers.
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