Why do we often think we know what we want, only to be disappointed with our purchases and choices? Behavioral economics combines insights from the fields of psychology and economics to elucidate decision-making, with an eye towards outcomes that might be deemed irrational in some frameworks (including classic economic theories). Whereas a person might be expected to weigh the benefits and drawbacks and then choose the best possible option, behavioral economics demonstrates that people rarely behave in this manner. Individuals are often influenced by emotion or innate bias (such as future discounting) to make choices that are not in their best interests in the long run. As our awareness of behavioral economics has increased, individuals and institutions have attempted to nudge people, especially in the realm of consumer goods or financial savings.
What Is Behavioral Economics?
Why We Make Irrational Choices
Many people are inclined to choose an option that brings instant pleasure, rather than the one which will beget long-term satisfaction at the expense of short-term gratification. Using behavioral economics, individuals and institutions can take advantage of this to manipulate people into a specific course of action or purchase. Not all of these manipulations are harmful, as behavioral economics can be used to get people to make positive behavioral changes, such as eating less or saving more money.