Behavioural Economics : A Challenge To Mainstream Economic Models
Introduction : Behavioural economics is a relatively new field that combines insights from psychology, judgement, decision making and economics to generate a more accurate understanding of human behaviour. Economics has long differed from other disciplines in its belief that most if not all human behaviour can be easily explained by relying on the assumption that our preferences are well-defined and stable across time and are rational. Behavioural economics emerged against the backdrop of the traditional economic approach known as rational choice model. The basic message of behavioral economic is that humans are hard wired to make judgement errors and they need a nudge to make decisions that are in their own best interest. This approach complements and enhances the rational choice model. The Rational Consumer : Economists try to build efficient models by making simplified assumptions about consumer behaviour. One of the most common assumptions being that the consumer is rationa