This one makes sense, but takes its theories to the extreme. Not everyone behaves completely irrationally all the time - most people understand how their actions will affect them financially and do what is best for them. -Megan Myers
Behavioralists attacks the overlooking of peoples' ability to act rationally. People overextend themselves on credit cards and take mortgages they shouldn't, and these behaviors cannot be graphed or predicted.
i agree with megan that not everyone is irrational 100% of the time, but as a group, humans are irrational a great majority of the time. we are dumb. we make mistakes because we don't think through to the end or even think in a logical manner. we also do not know everything. that lack of knowlege causes imperfect answers because we may not know a key piece of the puzzle that is quite relevant to whatever choice we pick and the consequence of it
Through the integration of human phsychological factors into the neo-classical economic model, behavioral economics is probably not only the most applicable but also the most useful when investing in publicly owned companies. These days it's safe to say that a simple rumor started by some reporter on CNBC (which is a POWERFUL tool in this sense) that a company is offering covert tax-free luxuries to it's execs or that its well-known CEO engages in insider trading, can cost the company (m/b)illions of dollars. Everyone is now driven by fear in selling their shares, and furthermore grow a strong distaste in the company's management even if it's just a stupid rumor that has no validity. Just watch "Wall Street". Michael Douglas was a sensation. Behavioral economics is probably also the SAFEST way to bet on the market if one doesn't necessarily partake in sophisticated broker strategies. I'll add to Megan's point in saying that behavioral economics rather encourages rational thinking when numbers aren't as influential as the news. Where behavioral economics fails in the prediction of actual output in a market, it more than makes up for in saving the selfish customer a lot of dough. More importantly, it's probably a safer strategy to behave "irrationally" even if you think you'll make a lot of money later. If you can't beat em, join em; and since there's no way to beat a panic like the one mentioned above, it's best not to listen to an EDUCATED personal conscience. Correct me if I'm wrong.
P.S. I may not be a 100% correct since I'm not even an economics minor; and since topics like this are debated every Sunday on "Meet the Press" and "Face the Nation", it would be interesting to hear another side to this comment if I'm wrong. Peace.
I think that as a whole one could argue that humans are "100%" irrational, but thats just because they went against what that one peorson wanted. Like Megan said, people are aware of what they are doing but even though they could help the economy as a whole they might choose to be selfish and help them self for that certain point in time. I think its all a matter of opinion and whos point of view you are looking at.
Behavioral Economics is a divergent school of economic thought that asserts that people make very irrational decisions, irrational meaning those decisions that, microeconomically, aren't wise. This theory has some credibility to it, especially since the mortgage crisis stemmed from irrational decisions of homeowners and lenders. However, the people that make profoundly irrational financial decisions likely make much fewer investments than the millionaire, who makes many prudent decisions in order to preserve his wealth. All of this aside, behavioral economics seems overly cynical and fails to present a solution to the question of how the economy should function, because, of course, policies can't be instituted if nothing can be predicted. -Ian Carroll
Even though people may not act irrationally because they know it will hurt them, sometimes the irrational choice fulfills a person and makes them happy. But in the terms of macro, who really cares about what I just said right? Irrational behavior in macro can be really bad; for example, hyperinflation or boycotting for political reasons- they seem pretty dumb and only hurts later on. Irrational thought on a personal sense is semi-okay, but in a macro sense it's rather, well.. irrational.
The behavioral economics school of thought operates on the idea that people act irrationally. Irrational her includes actions that are not in the best interest to the economy. For example, when government raises taxes to fund spending many people hold on to their money instead of giving it up for the sake of the economic plan. An example of behavioral economics is charity. Charity produces no economic reward.
My comment btw is supposing that everyone knows that the rumor is more than likely to be false, but they, for paranoid/other phsycological reasons behave irrationally and sell their shares anyways.
In my opinion, this school of economic thought is pretty viable; the idea that people are irrational and are therefore the problem makes a ton of sense. We always hear that people are far from perfect, but people are even FARTHER from perfect when economics are concerned. The prime examples are some already brought up: the mortgage crisis, the lack of spending in this recession. As humans, we always believe we're as right as the day is long, and we're naturally arrogant. Though this isn't 100% of the problem, behavior and irrationality can definitely be attributed to a lot of problems these days.
Although sound and relate-able in their reasoning, behaviorist seem too pessimistic towards human rationality; thus, over compensating for unpredictability in their policies.
As people in the system tend to act irrational we can only assume that they shall act that way. However the system is taken a bit to the extreme because even though people tend to act irrational they do so in an understandable way. As people tend to do the unexpected than as a behavioralist they must expect that which is unexpected. Than it's just like playing stocks. You have to let the people cach on to what is happeng. Then they will jump on the band wagon
I think that the behavioral economist is an interesting school of thought. They basically point out that humans are not numbers, we can't be rationalized and held to quantified graphs. that explains why most of the graphs we use only really are related in general terms and not concise numbers. attempting to quantify a humans thought is not something easy, and there will always be another element that is not expected by economists, represented as irrational.
Behavioral Economics involves emotions. When making valid and rational decisions in the economic world, a fair amount of time emotions isn't a helpful aspect. Sometimes emotional decisions come out for the better, but mainly is irrational.
I think that assuming that every individual human will always act irrationally is illogical, but saying that an overall population's actions can be considered macroeconomically irrational has some merit. Most people will act microeconomically rationally but not macroeconomically.
I agree with Lindsay. Behavioral economics makes sense, but does not offer any solutions or additional theories to economics. All it says it that some people are crazy and act randomly. We already knew that.
True, the theory acknowledges the irrationality of consumers unlike the other theories. But bringing in psychology to economics is kind of weird. Especially when truly pyschology cannot always predict how people will react- even irrationally.
Behavioral economics makes sense, up to a point- sort of an applied economics. Being able to account for humans' irrationality will certainly help with predictions as how to deal with economic trends. This, however, is probably more relevant on the micro scale than the macro scale, as one focuses more and more on the individual.
The fact that behavioral economists are trying to account for irrationallity doesn't make sense to me. As soon as these economists "account" for the irrationallity of humans today, we as a population will change and the economists will have to fix all their findings again. This is a good theory, but thats all it is, a theory. In reality, it is near impossible to put it into practice.
This seems more like theory than policy to me. Since people are irrational most of the time and don't act predictably in their own self-interest, there can be no accurate predictions made, and therefore policy is impossible.
To me, behavioral economics is a valid side to economic thought that does not just provoke the mathematical and "rational" side to human actions but takes into account an "actual" human being who does not always behave the way traditional equations allow and breaks the mold. This is why I think behavioral economics (in moderation) allows for a more accurate understanding of our economy. -Matthew Mitts
This one makes sense, but takes its theories to the extreme. Not everyone behaves completely irrationally all the time - most people understand how their actions will affect them financially and do what is best for them. -Megan Myers
ReplyDeleteGreat comment!!!!
ReplyDeleteBehavioralists attacks the overlooking of peoples' ability to act rationally. People overextend themselves on credit cards and take mortgages they shouldn't, and these behaviors cannot be graphed or predicted.
ReplyDeletei agree with megan that not everyone is irrational 100% of the time, but as a group, humans are irrational a great majority of the time. we are dumb. we make mistakes because we don't think through to the end or even think in a logical manner. we also do not know everything. that lack of knowlege causes imperfect answers because we may not know a key piece of the puzzle that is quite relevant to whatever choice we pick and the consequence of it
ReplyDeleteThrough the integration of human phsychological factors into the neo-classical economic model, behavioral economics is probably not only the most applicable but also the most useful when investing in publicly owned companies. These days it's safe to say that a simple rumor started by some reporter on CNBC (which is a POWERFUL tool in this sense) that a company is offering covert tax-free luxuries to it's execs or that its well-known CEO engages in insider trading, can cost the company (m/b)illions of dollars. Everyone is now driven by fear in selling their shares, and furthermore grow a strong distaste in the company's management even if it's just a stupid rumor that has no validity. Just watch "Wall Street". Michael Douglas was a sensation. Behavioral economics is probably also the SAFEST way to bet on the market if one doesn't necessarily partake in sophisticated broker strategies. I'll add to Megan's point in saying that behavioral economics rather encourages rational thinking when numbers aren't as influential as the news. Where behavioral economics fails in the prediction of actual output in a market, it more than makes up for in saving the selfish customer a lot of dough. More importantly, it's probably a safer strategy to behave "irrationally" even if you think you'll make a lot of money later. If you can't beat em, join em; and since there's no way to beat a panic like the one mentioned above, it's best not to listen to an EDUCATED personal conscience. Correct me if I'm wrong.
ReplyDeleteP.S. I may not be a 100% correct since I'm not even an economics minor; and since topics like this are debated every Sunday on "Meet the Press" and "Face the Nation", it would be interesting to hear another side to this comment if I'm wrong. Peace.
I think that as a whole one could argue that humans are "100%" irrational, but thats just because they went against what that one peorson wanted. Like Megan said, people are aware of what they are doing but even though they could help the economy as a whole they might choose to be selfish and help them self for that certain point in time. I think its all a matter of opinion and whos point of view you are looking at.
ReplyDeleteBehavioral Economics is a divergent school of economic thought that asserts that people make very irrational decisions, irrational meaning those decisions that, microeconomically, aren't wise. This theory has some credibility to it, especially since the mortgage crisis stemmed from irrational decisions of homeowners and lenders. However, the people that make profoundly irrational financial decisions likely make much fewer investments than the millionaire, who makes many prudent decisions in order to preserve his wealth. All of this aside, behavioral economics seems overly cynical and fails to present a solution to the question of how the economy should function, because, of course, policies can't be instituted if nothing can be predicted. -Ian Carroll
ReplyDeleteEven though people may not act irrationally because they know it will hurt them, sometimes the irrational choice fulfills a person and makes them happy. But in the terms of macro, who really cares about what I just said right? Irrational behavior in macro can be really bad; for example, hyperinflation or boycotting for political reasons- they seem pretty dumb and only hurts later on. Irrational thought on a personal sense is semi-okay, but in a macro sense it's rather, well.. irrational.
ReplyDeleteThe behavioral economics school of thought operates on the idea that people act irrationally. Irrational her includes actions that are not in the best interest to the economy. For example, when government raises taxes to fund spending many people hold on to their money instead of giving it up for the sake of the economic plan. An example of behavioral economics is charity. Charity produces no economic reward.
ReplyDeleteMy comment btw is supposing that everyone knows that the rumor is more than likely to be false, but they, for paranoid/other phsycological reasons behave irrationally and sell their shares anyways.
ReplyDeleteIn my opinion, this school of economic thought is pretty viable; the idea that people are irrational and are therefore the problem makes a ton of sense. We always hear that people are far from perfect, but people are even FARTHER from perfect when economics are concerned. The prime examples are some already brought up: the mortgage crisis, the lack of spending in this recession. As humans, we always believe we're as right as the day is long, and we're naturally arrogant. Though this isn't 100% of the problem, behavior and irrationality can definitely be attributed to a lot of problems these days.
ReplyDeleteAlthough sound and relate-able in their reasoning, behaviorist seem too pessimistic towards human rationality; thus, over compensating for unpredictability in their policies.
ReplyDeleteAs people in the system tend to act irrational we can only assume that they shall act that way. However the system is taken a bit to the extreme because even though people tend to act irrational they do so in an understandable way. As people tend to do the unexpected than as a behavioralist they must expect that which is unexpected. Than it's just like playing stocks. You have to let the people cach on to what is happeng. Then they will jump on the band wagon
ReplyDeleteSo....people act irrationally. This theory is pretty sound, but it doesn't offer any solutions. Worthless.
ReplyDeleteBehavioral economics deals with people making decisions more on their emotions rather than logical economic decisions, for the most part.
ReplyDeleteI think that the behavioral economist is an interesting school of thought. They basically point out that humans are not numbers, we can't be rationalized and held to quantified graphs. that explains why most of the graphs we use only really are related in general terms and not concise numbers. attempting to quantify a humans thought is not something easy, and there will always be another element that is not expected by economists, represented as irrational.
ReplyDeleteBehavioral Economics involves emotions. When making valid and rational decisions in the economic world, a fair amount of time emotions isn't a helpful aspect. Sometimes emotional decisions come out for the better, but mainly is irrational.
ReplyDeleteI think that assuming that every individual human will always act irrationally is illogical, but saying that an overall population's actions can be considered macroeconomically irrational has some merit. Most people will act microeconomically rationally but not macroeconomically.
ReplyDeleteI agree with Lindsay. Behavioral economics makes sense, but does not offer any solutions or additional theories to economics. All it says it that some people are crazy and act randomly. We already knew that.
ReplyDeleteTrue, the theory acknowledges the irrationality of consumers unlike the other theories. But bringing in psychology to economics is kind of weird. Especially when truly pyschology cannot always predict how people will react- even irrationally.
ReplyDeleteBehavioral economics makes sense, up to a point- sort of an applied economics. Being able to account for humans' irrationality will certainly help with predictions as how to deal with economic trends. This, however, is probably more relevant on the micro scale than the macro scale, as one focuses more and more on the individual.
ReplyDeleteThe fact that behavioral economists are trying to account for irrationallity doesn't make sense to me. As soon as these economists "account" for the irrationallity of humans today, we as a population will change and the economists will have to fix all their findings again. This is a good theory, but thats all it is, a theory. In reality, it is near impossible to put it into practice.
ReplyDeleteThis seems more like theory than policy to me. Since people are irrational most of the time and don't act predictably in their own self-interest, there can be no accurate predictions made, and therefore policy is impossible.
ReplyDeleteTo me, behavioral economics is a valid side to economic thought that does not just provoke the mathematical and "rational" side to human actions but takes into account an "actual" human being who does not always behave the way traditional equations allow and breaks the mold. This is why I think behavioral economics (in moderation) allows for a more accurate understanding of our economy.
ReplyDelete-Matthew Mitts