Question

6. Define behavioral economics. What are three common mistakes that behavioral economics says

consumers often make? Give an example of each mistake.

Answer 1

Behavioural economic is generally study of effects of cognitive and emotional and psychological factors which affect economic decisions taken by individual and institutions.

The three mistakes often people make are:

1. They dont take rational decisions and rely on gut feeling
2. Believe in buying now and paying later
3. Don't properly understand reward system and discount

For example, they assume good with higher price willbe better than good with lower price.

For example, people prefer buying via credit cards which lands them up in circle of indebtedness as interest rates make the purchase more expensive.

For example, they assume good offering discount is cheaper quality and is accessible easily.