ECON 1 Lecture Notes - Lecture 11: Behavioral Economics, Fallacy, Confirmation Bias

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Behavioral economics- attempts to make better predictions about human choice behavior by combining insights from economics, psychology and biology. Systematic errors and the origin of behavioral economics: Economic decisions are rational meaning they maximize our chances of achieving what we want. Neoclassical economic assumptions provide a precise predictions about human behavior: People have stable preferences that aren"t affected by context. People are eager and accurate calculating machines. People are good planners who possess plenty of willpower. People are almost entirely selfish and self interested. Behavioral economist focus on being messy and vaguely right through complex models of human capabilities, motivations and mental processes. Focusing on the mental processes behind decisions: The fact that people are not perfectly rational implies two reasons for understanding the underlying mental processes that determine decisions: It should allow us to make better predictions about behavior. Efficient error prone brains: heuristics are energy savers.

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