Behavioral Economics: Economics as a Psychological Discipline

Abstract

economics questions the fundamental tenets of conventional economics. It looks at the underlying ways that social dynamics, human emotions, cognitive limits, and institutional biases influence economic choices and results. Empirically observed behavior is consistently not predicted by traditional economic models. They disregard the widespread impact of social preferences, context-dependent preferences, limited self-control, and flawed belief construction. Particularly in intricate contemporary contexts and the reaction to policy interventions, this gap restricts the explanatory capacity of classical theory and its capacity to guide successful policy. This study examines the theoretical contributions of prominent behavioral economics and related scholars and synthesizes results from a large body of empirical research. It critically analyzes how real-world phenomena deviate from accepted theoretical predictions. Human economic behavior is invariably different from that of a self-interested, perfectly rational "Economic Man." Among the significant findings are beliefs and preferences are subject to cognitive biases, context-driven, and unstable; Decisions are heavily influenced by social preferences; People have limited self-control and differ in how conscious they are of their biases; These psychological and social factors have a profound impact on market outcomes and agent behaviors. A more practical basis for comprehending economic phenomena is offered by behavioral economics, which successfully explains consistent departures from traditional forecasts.