Behavioral economics is a subject that combines the concepts of economics and psychology to understand why human beings react or behave in a particular way. This concept of economics is different from neoclassical economics. In neoclassical economics, it is assumed that most people have well-defined preferences and they make a well-informed decision based on their preferences.
According to Nobel laureate Richard Thaler, behavioral economics is more about understanding why people behave the way they do. It examines the difference between what people are expected to do and what they actually do. The difference between these two actions is studied in behavioral economics. This subject has a long history that can be traced back to the 18th century. Moreover, the work on behavioral economics can be found in the work of Israeli psychologists Amos Tversky and Daniel Kahneman. One of the famous concepts of this subject can be defined through the term, nudge. Amartya Sen is also considered as Mother Teresa of economics.
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It is a way to manipulate the choices of others and leads them to make a specific decision. For example, super or departmental stores tend to affect the buying behavior of their customers by displaying non-essential items near the cash counters. Likewise, many schools stock healthier food options near the cash counter to encourage students to eat healthily. The concept of a nudge was proposed by Thaler and was popularized by the book, Nudge: Improving Decisions about Health, Wealth, and Happiness. The concept of behavioral economics can be applied to everyday life. Students can read about this subject in detail through various reading materials.
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