00_P & B - Chapter 01

• Behavioral economics combines elements of economics and psychology
• try to understand how and why people behave the way they do in the economic environmental 
• Behavioral economics considers people as human beings who are subject to emotion and impulsivity, and who are influenced by their environments and circumstances.

This characterization draws a contrast to traditional economic models that have treated people as purely rational actors—who have perfect self-control and never lose sight of their long-term goals—or as people who occasionally make random errors that cancel out in the long run.

People do not always make what neoclassical economists consider the “rational” or “optimal” decision, even if they have the information and the tools available to do so. It differs from neoclassical economics, which assumes that most people have well-defined preferences and make well-informed, self-interested decisions based on those preferences.

Der Behaviorismus (engl. Behaviorism; von engl. behavior = verhalten) erforscht und erklärt das Verhalten von Menschen und Tieren nur mit naturwissenschaftlichen Methoden. Dabei beschränkt sich ein Behaviorist auf das von außen objektiv beobachtbare Verhalten als Reaktion auf Reize.

they influece each other

Classical economics:

Humans act rational = homo oeconomicus
-> Economists do not assume complete rationality of human behavior. However, their models are based on the assumption that deviations are unsystematic, small and hence
negligible/minor.

Behavioral economics:

Humans act with limited rationality = «bounded rationality» 
-> Deviations from rational behavior are substantial/major and systematic enough, hence they are predictable to develop new descriptive theories of human behaviors 

Classical economics:

Normaitve

• Simplified models, complexities and deviations are ignored
• normative models (Nutzen x Auftretenswahrscheinlichkeit -> Option mit höchstem Wert hat den grössten Nutzen gemäss Modell)
• im Fokus steht der subjektive Nutzen (Entscheidungsalternativen -> welche hat den grössten Nutzen

Behavioral economics:

Descriptive

• wie entscheiden Menschen wirklich und was gibt es für Einflussfaktoren?
• basier auf Prospect Theory (positive Ereignisse -> weniger Risiko / negative -> höheres Risiko)
• Erwartungsnutzen wird nicht als Grundlage genutzt

Classical Economics:

Focus on markets, economies, competition vs. monopoly etc.

Behavioral Economics:

Focus on institutions and on the context in which decisions are made

• Fixed preferences
• Completely rational behavior
• Complete market transparency and foresight
• Immediate reaction to new information
• Utility maximization
• Unlimited self-control

• Classical economics accepts that the homo oeconomicus is not realistic depiction of human behavior
• Homo oeconomicus is used as a simplifying assumption in economic models

The "Altruism" shows that humans do not act completely rational

Selfless behavior (e.g., donating, sponsoring and volunteering) or Stem cell donation

The "Decoy Effect" shows that humans do not have fixed preferences

Designing a product portfolio with certain product attributes and pricing (e.g. iphones)