- Bounded Rationality: This idea suggests that people have limits to how much they can think and understand. Instead of always making perfect decisions, they often rely on simple ways of thinking. Understanding bounded rationality helps us see why individuals sometimes make choices that might not seem logical.
- Choice Architecture: Think of this as designing the environment where people make decisions. By changing how things are set up, we can influence the choices people make. With careful choice of architecture, we can guide people towards better decisions without taking away their freedom.
- Cognitive Bias: Sometimes, our brains make mistakes in thinking. These are called biases. For instance, we might think we are better at something than we are, or we might make decisions based on how information is presented to us. Recognizing cognitive biases can help us make more accurate judgments and decisions.
- Discrimination: This happens when people are treated unfairly because of their race, gender, or beliefs. It’s not right, but it can happen for social or cultural reasons. Addressing discrimination requires creating a more inclusive and equitable society where everyone is treated fairly.
- Herd Mentality: Imagine everyone following the crowd without really thinking for themselves. That’s herd mentality. It happens a lot, especially in situations like the stock market where people might buy or sell stocks just because everyone else is doing it. Understanding herd mentality can help us avoid blindly following others and make more independent decisions.
- Individual Characteristics: Every individual is different. Things like our knowledge, our beliefs, and even our personalities affect how we make decisions. Recognizing and understanding individual characteristics can help tailor strategies and interventions to better support diverse needs.
- Interpersonal Factors: Our relationships with others and the support we get from them might influence how we behave. Even things like religion or spirituality can play a part. Building strong interpersonal connections can enhance well-being and decision-making outcomes.
- Institutional Factors: This is all about the rules and structures in the places we live or work. They can affect what we do, even if we don’t realize it. Examining institutional factors helps us detect areas where policies and systems can be improved to promote fairness and effectiveness.
- Community and Cultural Factors: Finally, the norms and values in our communities shape how we think and act. These can be traditions or just the way things have always been done. Understanding community and cultural factors is essential for fostering understanding and respect across diverse populations.
Behavioral Economics: Meaning, Principles, Application and Criticism