Behavioural economics is the study of psychology as it relates to the economic decision making processes of individuals and institutions. The two most important questions in this field are:
1. Are economists' assumptions of utility or profit maximization good approximations of real people's behaviour?
2. Do individuals maximize subjective expected utility?
Behavioural economics homework explores why people sometimes make irrational decisions and why and how their behaviour does not follow the predictions of economic models. Notable individuals in the study of behavioural economics are Nobel laureates Gary Becker (motives, consumer mistakes; 1992), Herbert Simon (bounded rationality; 1978), Daniel Kahneman (illusion of validity, anchoring bias; 2002) and George Akerlof (procrastination; 2001).
Behavioural economics studies the effects of social, cognitive and emotional factors on the economic decisions of individuals and institutions and thereby the consequences for market prices, returns and the resource allocation. Behavioural models typically integrate insights from psychology with neo-classical economic theory. The behavioural models cover a range of concepts, methods and fields.
The study of behavioural economics assignment includes how market decisions are made and the mechanisms that drive public choice, such as biases towards promoting self-interest.
There are three main themes in behavioural finances:
1) Heuristics: People make decisions based on approximate rules of thumb and not strict logic.
2) Framing: The collection of stereotypes that make up the mental emotional filters individuals rely on to understand and respond to events.
3) Market inefficiencies: These include mis-pricings and non-rational decision making.
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