Behavioral Economics

There is an underlying assumption in the neoclassical economics that the expected utility function can be used to give explanations to the consumer behavior. However, to many of us, it may be difficult to comprehend just how possible it is to measure our actions and make decisions based on the utility approach that is discussed by economists. In line with the desire to come up with the best strategy and models to offer solutions to the menace, it was universally agreed that there is need to establish a discipline that would incorporate the attributes of psychology, cognitive science and economics. The relevant discipline in this case would be termed `Behavioral Economics. The main idea behind the formulation of this book is to help learners in the field of psychology and economics to understand the existing mutual relationship between the two disciplines. Various attributes of human behavior are discussed in this book. For instance mental accounting, as discussed elaborately in the book can be of great impact in getting to know why consumers are generally loss averse. Ideally, most economic choices are made based on individual emotions, a concept that is greatly disposed by the neoclassical economists. The role of emotions in decision making as portrayed in this book cannot be ignored. The application of behavioral economics in the modern world is evident, from marketing, clinical psychology, planning, insurance and banking. In line with the relevance of the discipline, this book tries to explore the various principles of behavioral economics and brings them to light by showing how applicable they are in modern policy making. It is with great appreciation and acknowledgement that the work done by economic proponents such as the Nobel laureate Daniel Kahneman has been very fundamental in making illustrations to most part of the literature coverage in this book. In addition, the vast empirical evidence and findings from various social scientists have confirmed the relevance of various principles covered in this book. It should be noted that the discipline of behavioral economics is important in the process of making decisions that are likely to impact on the economic growth of various states. In line with this, the book not only passes the test of significance but also remains at par with the existing need to impact knowledge to learners.