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Research Paper: The Evolution Of Behavioral Economics
Research Paper: The Evolution of Behavioral Economics
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Research Paper: The Evolution of Behavioral Economics
Introduction
There are different schools of thoughts in economics. These schools of thoughts present different ideas and predictions to run economy including Keynesian, classical, neo-classical, and behavioral school of thoughts. Neo classical theory is the prolonged version of classical theory. On the other hand, behavioral economics is the study of the psychological factors that influence the economic decision making of the people. The main purpose of the study is to analyze the difference between neo-classical and behavioral theory along with the leading figures of economics and current state of behavioral economics.
Discussion
There are major differences between neo-classical and behavioral economics. The first and most crucial difference is the unrealistic assumptions. Neo-classical theory is based on various unrealistic assumptions like individuals are selfish, eager, self-interested, good planner and are accurate calculating machine which cannot be seen in real world. Whereas, behavioral theory presents more realistic view by focusing the psychology of the people during economic decision making ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"eOKYzqrx","properties":{"formattedCitation":"(Camerer & Loewenstein, 2003)","plainCitation":"(Camerer & Loewenstein, 2003)","noteIndex":0},"citationItems":[{"id":754,"uris":["http://zotero.org/users/local/rVaVAHaF/items/4NRAZCGT"],"uri":["http://zotero.org/users/local/rVaVAHaF/items/4NRAZCGT"],"itemData":{"id":754,"type":"chapter","title":"Behavioral Economics: Past, Present, Future","container-title":"Advances in behavioral economics","publisher":"Princeton University Press","publisher-place":"Princeton, N.J.","page":"1-61","source":"authors.library.caltech.edu","event-place":"Princeton, N.J.","abstract":"Behavioral economics increases the explanatory power of economics by providing it with\nmore realistic psychological foundations. This book consists of representative recent articles in\nbehavioral economics. This chapter is intended to provide an introduction to the approach and\nmethods of behavioral economics, and to some of its major findings, applications, and promising\nnew directions. It also seeks to fill some unavoidable gaps in the chapters’ coverage of topics.","URL":"http://resolver.caltech.edu/CaltechAUTHORS:20110204-152338626","ISBN":"978-0-691-11681-5","shortTitle":"Behavioral Economics","author":[{"family":"Camerer","given":"Colin F."},{"family":"Loewenstein","given":"George"}],"issued":{"date-parts":[["2003"]]},"accessed":{"date-parts":[["2019",9,16]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (Camerer & Loewenstein, 2003). In other words, neoclassical assumes that individuals are rational while behavioral consider individuals as irrational. Neoclassical assumes that individuals’ preferences do not change for any reason while behavioral economics believes on unstable preference by individuals. In addition, neoclassical states that there is no issue resisting temptation while behavioral economics study psychology of individuals and consider this issues ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"mEDXtPoS","properties":{"formattedCitation":"(Mullainathan & Thaler, 2000)","plainCitation":"(Mullainathan & Thaler, 2000)","noteIndex":0},"citationItems":[{"id":752,"uris":["http://zotero.org/users/local/rVaVAHaF/items/EXSNEJ9J"],"uri":["http://zotero.org/users/local/rVaVAHaF/items/EXSNEJ9J"],"itemData":{"id":752,"type":"report","title":"Behavioral Economics","publisher":"National Bureau of Economic Research","genre":"Working Paper","source":"National Bureau of Economic Research","abstract":"Behavioral Economics is the combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications. We begin with a preliminary question about relevance. Does some combination of market forces, learning and evolution render these human qualities irrelevant? No. Because of limits of arbitrage less than perfect agents survive and influence market outcomes. We then discuss three important ways in which humans deviate from the standard economic model. Bounded rationality reflects the limited cognitive abilities that constrain human problem solving. Bounded willpower captures the fact that people sometimes make choices that are not in their long-run interest. Bounded self-interest incorporates the comforting fact that humans are often willing to sacrifice their own interests to help others. We then illustrate how these concepts can be applied in two settings: finance and savings. Financial markets have greater arbitrage opportunities than other markets, so behavioral factors might be thought to be less important here, but we show that even here the limits of arbitrage create anomalies that the psychology of decision making helps explain. Since saving for retirement requires both complex calculations and willpower, behavioral factors are essential elements of any complete descriptive theory.","URL":"http://www.nber.org/papers/w7948","note":"DOI: 10.3386/w7948","number":"7948","author":[{"family":"Mullainathan","given":"Sendhil"},{"family":"Thaler","given":"Richard H"}],"issued":{"date-parts":[["2000",10]]},"accessed":{"date-parts":[["2019",9,16]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (Mullainathan & Thaler, 2000).
Various economists contributed their time and effort to present the best prediction to make individuals and economies stable and prosper. Alfred Marshall is the prominent name whose main focus was microeconomics. He was a British economist. Marshall presented the approach of factors that lead to shift in supply and demand. Other contribution of Marshall included concept of price elasticity of demand, consumer surplus, producer surplus, marginal utility costs of production, and taxation. He wrote the book “principle of economics” and work for economics from 1890 to 1924 (until death). Alfred Marshall is known as founder of neo classical economics. He became the first principal of University of Bristol. In 1899 he became president of cooperative congress. Besides he acquired numbers of achievement in his life due to his contribution in economics. Another famous name in economics is Richard Thaler. He was an American economist known as founder of behavioral economics. He has born in a Jewish family in September 12, 1945. He got Nobel Memorial prize in economic sciences in 2017. His main contribution was the putting the foundation between psychology and economics during the process of economic decision making. The books which he wrote include The Winner’s Curse, Misbehaving: The making of behavioral economics, and Quasi-rational economics in which he presented the theories and information for behavioral economics. Besides, he was a columnist and wrote various columns focusing on US economy.
Behavioral economics presents insight of people through psychological factor while making economic decision. However, it is still not acceptable by most of the economist for teaching. This is because in most of the economic setting behavioral elements show no impact and where they do economist have other explanations to explain the situation. In addition, there are various school of thoughts within behavioral economics which create conflict about which is the main stream. Therefore, behavioral economics does not incorporate into the mainstream of economic teaching even after becoming a field itself ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"fQy9veLx","properties":{"formattedCitation":"(\\uc0\\u8220{}Let\\uc0\\u8217{}s not emphasize behavioral economics,\\uc0\\u8221{} 2018)","plainCitation":"(“Let’s not emphasize behavioral economics,” 2018)","noteIndex":0},"citationItems":[{"id":756,"uris":["http://zotero.org/users/local/rVaVAHaF/items/KIF5PYYR"],"uri":["http://zotero.org/users/local/rVaVAHaF/items/KIF5PYYR"],"itemData":{"id":756,"type":"webpage","title":"Let's not emphasize behavioral economics","container-title":"Econlib","abstract":"The Atlantic has an article decrying the fact that economists are refusing to give behavioral economics a bigger role in introductory economics courses. I’m going to argue that this oversight is actually appropriate, even if behavioral economics provides many true observations about behavior. The core ideas of economics are extremely counterintuitive and are not accepted …","URL":"https://www.econlib.org/lets-not-emphasize-behavioral-economics/","language":"en-US","issued":{"date-parts":[["2018",12,28]]},"accessed":{"date-parts":[["2019",9,16]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (“Let’s not emphasize behavioral economics,” 2018).
Conclusion
Behavioral economics is a new idea which shows correlation between psychological factors and economic decision making. Neo classical is the prolonged version of classical school of thought while behavioral economics present more realistic view. Alfred Marshall and Richard Thaler are two famous economists who serve their time and effort in the field of economics. Behavioral economics becomes a field itself but it is unable to incorporate with the mainstream of economics because economists prefer other non-psychological factors to explain different models and economic conditions.
Work Cited
ADDIN ZOTERO_BIBL {"uncited":[],"omitted":[],"custom":[]} CSL_BIBLIOGRAPHY Camerer, C. F., & Loewenstein, G. (2003). Behavioral Economics: Past, Present, Future. In Advances in behavioral economics (pp. 1–61). Retrieved from http://resolver.caltech.edu/CaltechAUTHORS:20110204-152338626
Let’s not emphasize behavioral economics. (2018, December 28). Retrieved September 16, 2019, from Econlib website: https://www.econlib.org/lets-not-emphasize-behavioral-economics/
Mullainathan, S., & Thaler, R. H. (2000). Behavioral Economics (Working Paper No. 7948). https://doi.org/10.3386/w7948
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