Behavioral Economist

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Behavioral Economist

A theorist who attempts to explain economic participants' decisions as those of rational actors looking out for their self-interest given the sometimes inefficient nature of the market. Tracing its origins to Adam Smith's The Theory of Moral Sentiments, one of behavioral economists' primary observations holds that investors and people in general make decisions on imprecise impressions and beliefs rather than rational analysis. A second observation states that the way a question or problem is framed to an investor will influence the decision he/she ultimately makes. These two observations largely explain market inefficiencies; that is, behavioral economists hold that markets are sometimes inefficient because people are not mathematical equations. Behavioral economics stands in stark contrast to the efficient markets theory. See also: Naive diversification, Formula plan, Subjective probabilities.
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Along with his fellow behavioral economists, Thaler is reinventing individual psychology.
Behavioral economists were among the first to consider human irrationality in decision making.
Those findings probably would not surprise behavioral economists like Thaler.
But that would be falling for the sunk cost fallacy that behavioral economists talk about, of allowing past actions to dictate future ones when they should not matter anymore.
Behavioral economists argue, however, that these sophisticated processes are well beyond the intellectual and analytical capacity of typical market participants and do not reflect the actual decision-making of the human players in the market.
Through an understanding of these factors, behavioral economists develop theories about human behavior, run real-world experiments to validate their hypotheses, and offer solutions.
Behavioral economists and other critics of the predictivist model of economics should read this book to understand that there is no general consensus between economists regarding the unification of the domain around a core of similar assumptions, one of the most important being its predictive power (Thaler, 2015).
4) These anomalies constitute observed behavioral deviations from the predictions of neoclassical economic theory, and behavioral economists have sought to explain the sources of such anomalous choices by identifying and cataloging a variety of cognitive limitations and psychological biases.
Many behavioral economists believe that you are far more likely to be persuaded by the first offer.
The behavioral economists came to these conclusions based on what they regard as more plausible assumptions about human behavior, validated to some extent by empirical evidence coming primarily from laboratory experiments but sometimes from field experiments or observational studies.
But, for now at least, behavioral economists like Akerlof, Shiller, Richard Thaler, and Matthew Rabin seem to be leading the field.

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