What is the behavioral economy?
Behavioral economy is the study of the effects of psychology on economic decisions. In other words, how the emotions and ideas of people can influence how they decide on money. One of the first supporters of this idea was Adam Smith. The behavioral economy was later ignored when a more rational approach was biased in the 18th century. In the middle of the age of 20, however, it was a clearer understanding of how much psychology plays in economics.
There are three main ideas in the behavioral economy. The first is that people generally act by "rules" unlike rational thinking. The rule is a principle that usually applies in most situations. An economic example is the phrase "You get what you pay for." This phase is usually true. Sometimes, however, cheaper products are just as good, not if better than the highest price brand. In this case, it would be rational to buy a cheaper but equally good product. Most people, However, would buy a more expensive product and think it was better.
The second idea is that people's thoughts of the problem are influenced by how the problem is presented. This is called framing. Framing can be seen when shops advertise sales. Product A costs $ 3.99 in USD (USD) but is not sold very well. So two shops invented a way to sell the product and as quickly as possible, as possible, by advertising the product in their weekly leaflets. The first store advertises it as a 75% discount on the original. The second store advertises it as $ 3.00 from the original price. Both stores now sell a product for $ 0.99. The first trade will have more buyers than the second, because the 75% discount sounds like much more than just $ 3.00, provided the consumer does not know the original price. How was the discount on which consumers were stored.
Darkness of behavioral economics is market inefficiency, which explains the results when something other than expected happens. This concept withapplies to the stock market. Market efficiency is the idea that prices reflect all known information about events. No investors know what happens to all other investors. The inefficiency of the market is anything that happens to question this idea irrationally. An example of this is the sale of overvalued shares and the use of this money to buy undervalued shares. If this is done correctly, investors can earn a lot of money in this way, even if it does not seem rational.
other ideas in the behavioral economy are grazing and group thinking. These state that people will follow everything that is popular at the time, and think as a group of people instead of individuals. For example, people who sell their shares and emptied their bank accounts for a hint of financial decline can start panic. Others see it and Decide the same thing, which only damages the economy. People can rationally understand that these things are worsening the economy, but because everyone else does it, they do it too.
The behavioral economy can explain the times of prosperity and times of economic problems, as well as predict how people will respond to situations during everyone. People make financial decisions based on psychology all the time. When considering trends in economics, this emotional decision should be taken into account in order to provide the most authentic view.