• Behavioral economics is a field of study that combines insights from psychology and economics to understand how people actually make decisions

Behavioral Economic Principles

• Mental shortcuts (heuristics) help us decide quickly, but often lead to errors (biases).

• Decisions are based on perceived gains/losses rather than final outcomes.

• People make different decisions for the present vs. the future.

• People aren’t fully rational—they have limits on time, information, and cognitive ability.

Purpose Of Behavioral Economics

• The purpose of behavioral economics is to understand and explain how real people make decisions

• Mostly when they deviate from traditional economic assumptions of rationality.

• Improve economic models by making them more realistic and psychologically accurate.