Traditional or Behavioral Discussion
My opinion leads to behavioural economics beliefs
According to the “Journal of behavioural economics” (1981), behavioural economics explores what affects people’s economic decisions, and the consequences of these decisions for market prices, returns, and resource allocation. On the other hand, traditional economics assumes that people’s economic decisions are based purely on the rule of maximizing utility. As reiterated in the journal, behavioural economists have shown that people have psychological biases, care about specific values like fairness, and all these undermine their utility maximization behaviour. Behavioural economics differs from traditional economics in two main ways: First, the latter is based primarily on theoretical models, while the former relies heavily on empirical analyses to test hypotheses. Secondly, while traditional economics assumes that people’s decisions are based mainly on the rule of maximizing utility, behavioural economics assumes that people tend to have psychological biases which affect their utility maximization behaviour.
Behavioral economics is important because it makes it easier for economists to identify situations which we make irrational decisions that might not be in our best interest. That human beings make irrational decisions is no secret. Therefore, identifying and correcting the irrational choices we tend to make is a crucial highlight of behavioural economics. Moreover, a basic understanding of concepts from behavioural economics can be useful, such as in helping us become better negotiators. As pointed out Hattwick, (1986), certain biases, such as optimism bias, tend to affect our economic decisions. In this case, for instance, we may tend to think that everything will work out well for us, and this is fallacious because it can affect our planning. Moreover, learning about behavioural insights can help us in our day to day lives, such as learning tendencies which affect our purchasing decisions.
References
Journal of behavioural economics. (1981). Journal of Behavioral Economics, 10(1), iii. Doi: 10.1016/s0090-5720(81)80001-0
Hattwick, R. (1986). The behavioural economics of business ethics. Journal of Behavioral Economics, 15(1-2), 87-101. Doi: 10.1016/0090-5720(86)90060-4