IndexAbstractIntroductionLiterature ReviewConclusionReferencesAbstractBehavioral economics, the topic of this essay, is the combination of psychology and economics that investigates what happens in markets where some agents show limitations humans and complication. Limited willpower captures the fact that people sometimes make choices that are not in their long-term best interests. Limited self-interest incorporates the comforting fact that human beings are often willing to sacrifice their own self-interest to help others. Behavioral economics encompasses consumer behavior and financial market behavior, but a preeminent focus is placed on contemporary behavioral economics. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Behavioral economics also deals with theories of production, theories of the firm, household behavior, and institutions. The results of behavioral economists tend to refute the idea that individuals behave in a neoclassical way, giving rise to a literature and a debate on which heuristics and sociological and institutional criteria are rational, which produce optimal economic results and which tend to improve the socioeconomic well-being. In behavioral economics, the theory of decision making integrates mathematics and statistics to better understand how decisions such as choices between incommensurable goods, choice under uncertainty, intertemporal choice, and how social choices are made.IntroductionBehavioral economics and the Economic psychology have made notable progress in academic and public profile publications over the past two decades. This was fueled to a large extent by the research paradigm advanced by psychologists Daniel Kahneman and the late Amos Tversky. The focus of their approach to behavioral economics, called the biases and heuristics (or cognitive biases and illusions) paradigm, is rooted in a particular worldview of cognitive psychology and highlighted by experiments in economic psychology and behavioral economics. it is the only one offered by behavioral economics, but it is clearly the dominant and best known one, since it finds that individuals incur systematic errors and biases in their decisions. Therefore, individuals are said to be persistently irrational in their decisions. decision making. They are irrational because their choice behaviors deviate from neoclassical norms of rationality. Because they are irrational, inducing rational, neoclassical behavior becomes a matter of critical importance from the perspective of this paradigm. In the early 1980s, a small group of economists began to argue that the rational expectations revolution had gone too far, and that to understand many important economic phenomena, it was critical to develop new models that made hypotheses about human behavior that were psychologically sound. more realistic and in particular allowed less than fully rational thought. This message was initially rejected, but gradually gained traction. Today, “behavioral economics” – the effort to improve our understanding of the economy through psychologically realistic models – is firmly entrenched. Hundreds of articles following this tradition, many of which are highly cited, have appeared in major economics and finance journals. Dozens of specialists in the field have been hired and commissioned at major universities, and conferences on this topic are attracting ever-larger crowds. Furthermore, this approach to economics hasgenerated significant interest beyond academia, among non-academic economists, policymakers, and the general public. Economic psychology has largely been the playground of psychologists interested in applying psychological insights to explain economic phenomenon at both the micro and macro levels. Much attention has been placed on describing and explaining behavior at the micro level. Contemporary behavioral economics (as mentioned in the abstract) has been primarily concerned with applying such insights to engage and change economic theory, although the description of choice behavior in the experimental domain has dominated contemporary mainstream behavioral economics, just as it has dominated economic psychology. Behavioral economics has always dominated has been concerned with psychological, sociological, and institutional variables as determinants of choice, which together lend themselves to a better understanding of choice behavior in the realm of consumption and production. This has important implications for micro and macroeconomic outcomes. Thus making the field of behavioral economics very close and imminent. Behavioral economics, however, broadly defined, has had little impact on the teaching of economics, especially in terms of basic undergraduate education. At best behavioral economics can be an addition, a possible section, or a chapter on special topics to the core or foundations of what is taught. The goal of this essay is to articulate some of the basic insights of behavioral economics and to illustrate how behavioral economics might be introduced into the fundamental principles of economics education. Literature Review From the 18th century to the first half of the 20th century, leading economist figures such as Adam Smith, John Maynard Keynes, and Irving Fisher were known to introduce aspects of human psychology into their analysis of economics. By the mid-20th century, however, this practice was less common, and with the advent of the rational expectations revolution in the 1960s, economists began to focus almost exclusively on models with the same narrowly specified assumptions about people's individual psychology . they have rational beliefs and make decisions based on expected utility. The growth of behavioral economics over the decades is the result of a collective effort by many researchers. But if there is one person who played a central role in the rise of behavioral economics, particularly in its early years, it would be Richard Thaler, the 2017 Nobel Prize winner in economics. To appreciate how central he was, let's consider the four factors that have driven the growth of the sector. First, researchers have documented numerous “anomalies” – empirical facts that are difficult to reconcile with the traditional, rational model of economic behavior. Second, they developed a new generation of models based on psychologically more realistic assumptions. Third, they found ways to help people make better economic decisions. And fourth, the behavioral economics movement attracted talented young researchers who accelerated the development of the field. Behavioral economics is a small and growing field within economics that seeks to incorporate more realism and insights from psychology into individual behavior into economic models. The goal of this movement is not to disprove economic principles, but rather to help improve our understanding of behavior in ways that allow economists to make better predictions and suggest better economic policies. Although many economists continue to behesitant, over the past decade there has been growing interest in understanding how relaxing some assumptions about behavior and incorporating new insights into information processing or individual preferences could impact economic models and analyses. The behavioral economics movement has demonstrated that it is often possible to incorporate slightly richer assumptions about individual behavior into economic models without losing the fundamental tractability and purpose of those models. Therefore, in broader terms, the need for a behavioral approach in economics arises whenever what is "rationally" expected of a utility-maximizing agent is not confirmed by observed behavior. Faced with this not uncommon situation, behavioral economists seek to employ behavioral theories (typically derived from psychology) to explain such discrepancies: often by highlighting how and why certain factors appear to limit or constrain rationality. The current literature within the academic community is extremely broad. A potential problem in identifying relevant literature is the embryonic state of the research, accompanied by the lack of any unifying theory of reference. 'Behavioral economics' has become something of an umbrella term that is sometimes used interchangeably with 'experimental economics'. Strong connections between behavioral and experimental economics can be seen in behavioral economists' reliance on experimental data to test hypotheses and motivate new theoretical models. However, a distinction remains to be made. Some experimental economists do not identify with behavioral economics at all, but rather place their work firmly within the category of rational choice, studying, for example, the performance of different market institutions and the factors that reinforce the predictions of neoclassical theory . Experimental economics is defined by the method of experimentation, while behavioral economics is methodologically eclectic. The two subfields have slightly different standards regarding the correct technique for conducting laboratory experiments and very different interests regarding the types of data that are most interesting to collect. Therefore, it is incorrect to automatically place experimental work under the heading of behavioral economics. In the other direction, there are many behavioral economists who work on theoretical problems or use non-experimental data. Thus, although behavioral and experimental economists often work complementaryly on related sets of questions, there are strong networks of researchers also working in disjoint subsets of these subfields. It is important to recognize that much of the work in the field of behavioral economics resides in the interdisciplinary intersection area of ​​Economic Psychology, a discipline which is itself well-established and has its own dedicated journal (Journal Economic Psychology). In a detailed article entitled Psychology and Economics Rabin (1998) argues that “while standard economics assumes that each person maximizes stable and consistent preferences given rationally formed probabilistic beliefs, psychological research teaches us how to describe preferences more realistically , on prejudices in beliefs”. -training and the ways in which it is misleading to conceptualize people as attempting to maximize stable, consistent, and accurately perceived preferences. Rabin highlights three themes considered to be of particular relevance: Aversion to losses exceeds appreciation of gains. from pure self-interest can arise due to issues of fairness, mutual altruism (mutual benefit), and even revenge. What inUnder conditions of uncertainty, biases in judgment (including those created by too much or too little information) can lead to errors. A Key Distinction A feature of behavioral economics, often lost in the discourse of biases and heuristics, is that the realism of assumptions is important to the accuracy of analytical predictions and causal analysis. This is in stark contrast to a critical (often implicit) assumption in contemporary economics that assumptions, be they behavioral, sociological, and institutional, do not matter in the construction of economic theory. What matters is the accuracy of the analytical predictions generated by the theory. Therefore, these are some of the key points, critical for behavioral economics: Hypotheses matter substantially for causal and predictive analysis, whether they are psychological, sociological or institutional. It is important to understand why people behave in certain ways, regarding both their cognitive abilities and environmental constraints. It is important to understand how cognitive abilities, information flows, culture, learning, and institutions influence intelligent decision making. A key component of behavioral economics is building models that better reflect actual behavior. Such behavior can be both rational and intelligent without being neoclassical. Behavioral economists and economic psychologists conduct experiments and engage in empirical exercises to determine the choices people make and how these choices are made, and to ascertain the extent to which these deviate from mainstream mainstream economics. wisdom. Individuals tend to behave very differently than conventional wisdom predicts. Economic theory needs modification from a causal and/or normative perspective. Some important concepts to discuss are: the survival principle, multiple equilibria, bounded rationality, satisfaction, fast and frugal heuristics, x-inefficiency, efficiency wages, prospect theory, framing effects, efficient market hypothesis, social and personal capital, ability and soft or benevolent paternalism. Changing economic theory does not suggest that relative prices, opportunity costs, and incomes play no role in influenced behavior: material incentives matter. The analysis of supply and demand is enriched by the results and methodology of behavioral economics. Introducing non-material variables into one's analytical framework, such as altruism and reciprocity, social and personal capital, relative positioning, capabilities and framing, enriches consumer theory. The introduction of effort variability, non-material variables, organizational slack, capabilities and relative positioning enriches production theory. Well, talking about Biasness in econometrics, it is defined as the difference between the expected value of an estimator and the real value of the number or numbers to be estimated. In econometrics as in everyday use, stating that a “bias” exists implies having made an unequivocal commitment as to what the true or correct value is. The term bias is ubiquitous in behavioral economics, and much of its empirical and theoretical work concerns deviations from normative parameters that implicitly assert how people should behave. Given the observation that people deviate from a reference point (typically an axiomatic definition of rationality or formal logic), there are at least two distinct reactions to consider. Most behavioral economists have interpreted observed deviations from the assumptions of neoclassical economics as biases, implicitly stating that INeoclassical assumptions are unquestioned statements that define what good or intelligent economic behavior should be. According to this view, people who deviate from neoclassical parameters make mistakes, which is to say that they are biased. This, in turn, motivates some authors to recommend prescriptive policy changes aimed at diminishing the choices we make, causing us to conform more closely to the axioms of economic rationality. Alternative interpretations of observed deviations from neoclassical norms have been advanced by those who question whether the neoclassical model provides valid guidance on how we should behave and by those who fear the paternalistic implications of policies aimed at de-biasing choice. An alternative interpretation starts from the observation that people who systematically violate neoclassical assumptions also successfully survive in their respective economic environments. They will go to college, hold jobs, have children and grandchildren, and so on. If this were the case, then social scientists should abandon neoclassical benchmarks as normative guidelines in favor of more meaningful measures of economic performance, happiness, health, longevity, and new measures of adaptive success that have yet to be proposed. There is an ongoing active debate between behavioral and non-behavioral regarding the extent to which empirical realism is achieved by the behavioral economics research program. These two distinct levels of debate need to be disentangled to understand the different issues at play and how behavioral economics is likely to influence public policy as in 2009, the Obama administration recruited among its top advisors, a number by behavioral economists including Richard Thaler, Cass Sunstein, and Daniel Kahneman. When trying to convince neoclassical economists who are skeptical about the need for behavioral economics, behavioral economists point to the improved ability of their psychologically inspired models to fit data collected from a variety of sources, including experimental, macroeconomic, and market data financial. Skeptics outside of behavioral economics have questioned whether deviations from neoclassical assumptions have important consequences for the economy as a whole, suggesting that they could perhaps “mediate” overall. Skepticism about the relevance of experimental data remains strong, with many doubts expressed about whether undergraduate students participating in economic experiments can be relied upon to teach us anything new about economics, and whether something learned in a laboratory experiment can be generalized to larger populations in the economy, the so-called problem of external validity. Another theme of behavioral economics comes from its willingness to borrow from psychology and other disciplines such as sociology, biology, and neuroscience. To understand why methodological pluralism is characteristic of behavioral economics, one should remember that in neoclassical economics there is a single behavioral model applied to all problems, as well as a number of important efforts in economic history to eliminate the influence of other social sciences like psychology. and sociology. Although the structure of choice sets and objective functions change depending on the application, contemporary economists typically apply the maximization principle to virtually every decision problem they consider. Consumer choice is modeled as utility maximization, firm behavior is modeled as profit maximization, and public policy evaluation is analyzed through a.