Behavioural economics (also known as behavioural economics) is the study of the influence of psychological, cognitive, emotional, cultural, and social factors on individual and institutional decisions, as well as the differences between those decisions and those predicted by classical economic theory.
Behavioural economics is largely concerned with the limits of economic agents’ rationality. It basically studies how markets make decisions and the mechanisms that influence public choice. Psychology, neurology, and microeconomic theory are commonly used in the behavioural model.
An article titled ‘Economics and Modern Psychology 1’ by John Maurice Clark, a University of Chicago faculty member, was published in the January 1918 issue of the Journal of Political Economy (JPE). The basic argument he made when he founded behavioural economics was that the economist could try to ignore psychology, but he couldn’t ignore human nature. Further theories were provided in the study, such as ‘desire as a response to stimuli,’ which proposed that humans should manage their income as efficiently as their environment equips and enables them to do so.
Nobel laureates Gary Becker (motives, consumer mistakes; 1992), Herbert Simon (bounded rationality; 1978), Daniel Kahneman (illusion of validity, anchoring bias; 2002), George Akerlof (procrastination; 2001), and Richard H. Thaler (procrastination; 2001) are notable figures in the field of behavioural economics (nudging, 2017).