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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Today, behavioral economists challenge the fundamental economic theory that assumes humans are rational beings.
Half of all Americans have money in the stock market, yet economists can't agree on whether investors and markets are rational and efficient, as modern financial theory assumes, or irrational and inefficient, as behavioral economists believe.
Second, more important, while economists, especially behavioral economists, base their theory on systematic experimental or actual observations, they cannot economically explain or understand their findings by merely reporting them.
Behavioral economists, for example, often agree with Verburg that market activity is often not characterized by a rational pursuit of wealth.
This aligns with what behavioral economists call "present bias," the idea that people often make choices that benefit them in the short term and overlook future consequences.
To justify their hypothesis, Gennaioli and Shleifer draw on the cognitive biases established by behavioral economists. The notion of "representativeness"--when subjects systematically overestimate the probability of unlikely events that are made more probable by recent information--features prominently in their models.
For example, behavioral economists have urged policymakers to intervene in markets and restructure choice environments, the way that a decision is presented, without restraining people's freedom of choice.
How did Tullock respond to the claims made by behavioral economists that individuals are observed to act irrationally?
Let me explain those audacious claims by returning to the conventional case for open markets and then by briefly laying out a few of behavioral economists' major findings on pervasive flaws in human decision making, captured--supposedly--in an array of identified mental "biases."
Thus, the report states that governments should convene marketing experts and behavioral economists to develop public health campaigns designed to educate different populations on how best to prevent and mitigate the risk factors and harms of NCDs.
Many political scientists and behavioral economists establish the strong link between voting for a candidate and the economic value that the candidate represents.
What behavioral economists call the 'status quo bias' may not be all that bad.

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