Behavioral economics kind of flies in the face of the traditional economics approach. This rational choice model is based on the notion that rational people make sound judgments by weighing costs, pros and cons. They have the self-control to stay on the right path to achieving their goals.
I wish this was true, but it’s not.
Behavioral economics uses a variety of factors – psychological, emotional, cognitive and social – to determine why we make the choices, financial and otherwise, that seem to defy logic and traditional economic models.
In reality, people tend to make impulse decisions based on instant gratification and exhibit little self-control. Goals aren’t achieved because people often make decisions that aren’t aligned with their goals. Continue reading