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The Behavioral Economics Concepts

Introduction

Behavioral economics is a discipline that studies human behavior and its reasons. Its subject is influences experienced by humans that change their behavioral patterns and force them to make certain decisions. It is deeply connected with marketing, as instruments for influencing human behavior are widely used for advertising. Behavioral economics also studies cognitive biases and their consequences: how people make decisions, why they are often wrong, and how to improve them.

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Main body

One of my key findings, perhaps the most impressive for me, is that we are not really responsible for our decisions. Many stimuli influence people and literally force them to make decisions, including significant ones (Behavioral Economics, 2020). It is common for people to see things not as they are while thinking their experience is valid. There are three impressive findings from several videos: for example, according to Dr. Dan Ariely, in some conditions, two lines of equal lengths can seem to be not equal (TED, 2009). In another video, behavioral scientist Daniel Kahneman shows that instant thinking based on general concepts, which people often call “intuition,” is the subject of biases (Lonchar, 2015). They can be overcome only by careful, conscious thinking and analysis. The third impressive takeaway is the realization that we, people, can modify our beliefs, replacing them with scientifically proven knowledge and making them much less biased (TED, 2019). In that way, people are conditioned by numerous impulses around them and usually do not realize it, enabling those stimuli to lead them throughout life.

While people cannot take responsibility fully and tend to biases and fallacies, they usually think they can. It is called a confirmation bias, the cognitive error which leads to the automatic confirmation of all decisions made by a person (Behavioral Economics, 2020). It means if this person has already decided something, nothing will change this decision. The mind will prove this decision, finding several reasons why it is necessary; it is called bounded rationality. It is bounded because the information available to people is usually limited, while people tend to think that the available information is complete. The concept of inertia explains why it is very hard to overcome biases even when a person knows about biases: biases are automatic and persistent (Institute for Neuro & Behavioral Project Management, 2021). People usually do not realize that their knowledge is biased and limited: they make wrong decisions based on the assumption that they know everything. The realization of that situation with cognitive biases and limits of knowledge is the second important takeaway for me.

The third finding that is extremely helpful for me realizes people’s complicated relationships with time. The planning fallacy is the typical demonstration of those relationships: people underestimate the time necessary for a particular task (Institute for Neuro & Behavioral Project Management, 2021). From my own experience, it can be true on the other side as well: people can overestimate this time in case they are afraid or anxious. In that way, it is essential to be aware of those biases in time perception to uncover and overcome them, being able to create more efficient and beneficial plans and strategies.

Conclusion

As one can conclude, behavioral economics is very important for all people, as it gives them instruments for realizing their cognitive biases and overcoming them. No people are free from those biases: they seem to be inherent properties of the human brain. They influence every part of the behavior, making people think that, for example, equal things are not equal and vice versa, and they feel emotions without realizing why they feel them. Those emotions direct people to behave in a certain way, such as buying attractive things, although they often cannot answer why they are attractive; they just “want” them. In my opinion, understanding that numerous stimuli condition people, that our knowledge is limited and biased, and that our perception of time is often wrong is essential. It helps to overcome those biases and start to act much more consciously and efficiently.

References

Behavioral Economics. (2020). Behavioral science concepts. BehavioralEconomics.Com | The BE Hub. Web.

Institute for Neuro & Behavioral Project Management. (2021). Behavioral concepts. Web.

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Lonchar, M. (2015). Daniel Kahneman on intuition (speech at UC Berkeley) [Video]. Web.

TED. (2009). Are we in control of our decisions? | Dan Ariely [Video]. Web.

TED. (2019). 3 kinds of bias that shape your worldview | J. Marshall Shepherd [Video]. Web.

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StudyCorgi. (2022, October 14). The Behavioral Economics Concepts. Retrieved from https://studycorgi.com/the-behavioral-economics-concepts/

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StudyCorgi. 2022. "The Behavioral Economics Concepts." October 14, 2022. https://studycorgi.com/the-behavioral-economics-concepts/.

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StudyCorgi. (2022) 'The Behavioral Economics Concepts'. 14 October.

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