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Unraveling Behavioral Economics: Decoding Irrational Decision Making

Discover the fusion of psychology and economics in behavioral economics, uncovering the complexities behind human decision-making, and how irrational behaviors can be predicted and influenced. Explore the power of nudges and the impact of cognitive limitations on choices.

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Unraveling Behavioral Economics: Decoding Irrational Decision Making

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  1. Behavioral Economics Combining Psychology & Economics

  2. Traditional Economics Traditional economics is based on the assumption that people make rational decisions where the MB ≥ MC

  3. Behavioral Economics • Study of the social, cognitive& emotional factors which influence economic decisions making • Uses psychological experimentsto test human behavior

  4. Irrational Behavior? Lesson: We Discount Negative Outcomes . Lesson: We overestimate Positive Outcomes

  5. Intro. Reading 4 min. Rational Behavior Video: https://www.youtube.com/watch?v=wpMLYh-UIsA

  6. How the human brain works

  7. End Day 1

  8. BEHAVIORAL ECONOMICS Re-cap People often make irrational decisions These irrational decisions are often predictable People can be “nudged” to make better decisions (or worse!)

  9. Should Gov’t “nudge” people? 6 Areas to nudge people Ways to “Nudge”

  10. A nudge to eat better…..

  11. A nudge to save more People tend to procrastinatewhen it comes to unpleasant tasks, • such as spending cuts or saving for retirement.

  12. Reading:The Truth about Relativity http://danariely.com/videos/

  13. 16% 0% 84% 68% 32%

  14. Ted Video (17 minutes) http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html

  15. Ted Video Recap Cognitive Physical Limitations vs. Limitations http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html

  16. Behavioral Economics Recap • We can’t compute the value of something alone • We make decisions by comparing options • We need context => everything is relative • Our decisions change by what we compare • We avoid hard comparisons=> • we seek things that are easy to compare • 4) We admit physical limitations but not cognitive limitations • 5) Irrational behavior is predictable • It occurs over & over again => we are robotic

  17. Which line is longer?

  18. Which Line is Longer?

  19. PhD in PsychologyNoble Prize in Economics System 1 System 2

  20. Solve this problem Bat costs $1.05 Ball costs $0.05

  21. Got Awareness? • http://www.youtube.com/watch?v=Ahg6qcgoay4

  22. System 1 vs. System 2Decision Making https://www.youtube.com/watch?v=JiTz2i4VHFw&list=PLvFsG9gYFxY_lAm8jnex08LeiGMTiZQOW 5 minute summary

  23. Using System 1 vs. System 2 https://www.youtube.com/watch?v=mWaIE6u3wvw Interview with Charlie Rose 27 minutes Start 4 minutes in…

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