Behavioral economics     (or economic behavior)

02/5i - 04/1i,7i,9i - 05/3i - 06/3i + see experimental economics, socioeconomics, public choice, unintended consequences, behavioral finance, decision, bias

Trying to know what economic players have in mind? How do they make choice, not only between plums and strawberries? Definition: BE / Behavioral economics is a field of knowledge that studies how people and institutions make their economic choices and apply them in practice. In other words BE focuses on how we behave with money, production, work, spending, investment... What is looked for is how economic decisions are taken, and what are their effects on the economy. Biases and anomalies as key behavioral economics phenomena When the non standard is the standard. Behavioral economics focuses mostly on Individual and collective, cognitive, emotional or reflexive (*) biases (**) that might affect economic decisions. Those biases might lead to: Suboptimal outcomes for the decider (for example via a defective anticipation of risks and rewards that leads to bad choices) More generally, economic anomalies. The word "anomaly" is here usually taken in the sense of not fitting a general criterion of maximization of economic riches creation. (*) reflexive characterizes routines and automatic reactions (**) the "bias" article shows a synthesis of what those biases are,   and a full list of them (and of the related anomalies) is given in the glossary list General categories of BE Observing some economic phenomena with a microscope and others with a telescope. Behavioral economics findings (exploring the "anomalies" mentioned above) weakens various standard economic paradigms that are based on the hypothesis of rational decisions. But on the other hand BE does not offer its own general theory and general laws. Well in many other areas of knowledge also there are no laws that explain everything! Its works and findings can be categorized according to two classical fields of economics:  Behavioral microeconomics (behaviors related to categories of economic players). Behavioral macroeconomics (effects on economic aggregates: consumption, investment, GDP growth, foreign trade, monetary evolutions..). Also Behavioral economics methods and findings are close to those of Behavioral finance, those two fields of knowledge being strongly related. Private and public economic players In the economic playground, some players might be smarter than others. But all of them contribute to the common result Behavioral economics can also be split according to two types of economic institutions / players: public administration and private players (either individuals or organizations). Each one has its own mode of economic decision-making and behaviors. can bring its own rationality and efficiency, but can bring also, if there is a lack of counter powers, its own unintended consequences, economic anomalies and misallocations of resources. Here is how the game is fed and by whom: Market behaviors are caused by the actions of private economic players: General population categories, such as consumers, workers, other producers, traders and distributors, To take more specific examples, business managers (see behavioral corporate management), entrepreneurs, And the financial sector: * Financial institutions (insurance, banks, funds...), * Investors, as they have their own role in the allocation of economic resources. * Also depositors, borrowers, insurance policy holders... Public choice (see that phrase + behavioral public economics / finance), Here, decisions are made by public authorities, or by the electors who appoint them. Detailed fields of applications BE clients? To enter into more details, behavioral economics finds a full range of applications, in, among other fields, General macro / micro economic issues: Quantitative behavioral economics Economic analysis and forecasting, for the whole economy or for a specific industry. Economic policy Budget decisions and economic regulations by state and local administrations. Monetary decisions Money supply policy by central banks. Psychological behavioral economics aka Economic psychology: This area of knowledge deals with individual behavioral biases when making economic-related decisions (and how to correct them). Those "intimate" aspects are studied by neuroeconomics (see that word). The "behavioral biases" article gives some hints, as well as many other articles in this glossary (rationality, emotion, heuristic, mimicry, framing...). Experimental economics try also to elucidate some aspects by making people act individually or in small groups, even if it is dubious to extent the findings to the whole economic world Corporate strategy and management (see the "behavioral corporate management" article). And, as an important subfield, marketing: it adapts products and selling methods to the behaviors and styles of customers and prospects. It uses for example "behavioral segmentation", "neuromarketing", and other research techniques. And also, as a parallel field (not related only to corporations), the psychology of work. An example of research in this area is the part played by incentives and trust as factors to manage and motivate the workforce. And, of course, investing and money management: Here we have behavioral finance (see the related article) What about the ethics? Kind and fair? Behavioral economic / finance studies and findings are sometimes accused of been used as a tool of manipulation . But to know its findings can on the contrary be precious to protect oneself against manipulation (including self-manipulation).

Behavioral public economics / finance

04/9i,12i + see public choice bias, public behavioral finance, overconfidence in regulations, moral hazard

How does the king behave? Behavioral public economics / finance (or public behavioral economics / finance) is a nascent field of research. It applies behavioral concepts (rationality, heuristics, biases) to Public finance (planning, budgeting, spending, tax system, public borrowing...), And economic policy / regulation / monitoring... Here, the issues about the rationality of decisions are quite similar to those found in behavioral finance / economics generally. Human biases are biases, whatever the system.