ECON 2023 Lecture Notes - Lecture 15: Behavioral Economics, Observational Error, Rationality

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Systematic errors and origin of behavioral economic: rational. Maximize our chances of achieving what we want. We feel that our decisions are rational <= not true: systematic errors. Errors people tend to repeat them over and over. (no matter how many times they encounter a similar situation: behavioral economics. Study that neoclassical economics could not explain why people make so many systematic errors. Neoclassical assumption: people are fundamentally rational (<= not true) Alternative theories that could make more accurate predictions about human behavior: including tendency people toward making systematic errors. Neoclassical economics: highly unrealistic assumptions [people are : stable preferences, not affected by context, eager & accurate calculating machines, good planners, possess plenty of willpower, almost entirely sel sh & self-interested. Simplifying assumptions because : make it mathematically elegant & easy enough to solve, enable neoclassical model to generate very precise predictions about human behavior.

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