1. Behavioral Economics
Combining Psychology & Economics

2. Rational Behavior?
Traditional economics is based on the assumption that people make rational decisions where the MB ≥ MC
11 min. Rational Behavior Video
Start at 4:30 minutes…

3. Behavioral Economics
Study of the social, cognitive & emotional factors which influence economic decisions making.
Uses psychology to predict & test human behavior

4. Irrational Behavior?

5. Should Gov’t “nudge” people?
Econs vs. Humans
Areas to nudge people

8. BEHAVIORAL ECONOMICS Re-cap
People often make irrational decisions
But these irrational decisions are predictable
People can be “nudged” to make better decisions (or worse!)

9. System 1 vs. System 2 Decision Making

10. Reading: The Truth about Relativity
1) World as it really is?

11. Ted Video (17 minutes)

12. 16% 0%
84%
68%
32%

13. 16% 0%
84%
68%
32%

16. Ted Video Recap Cognitive Physical Limitations vs. Limitations

17. Behavioral Economics Recap
We can’t compute the value of something alone
We make decisions by comparing options
We need context => everything is relative
Our decisions change by what we compare
We avoid hard comparisons=>
we seek things that are easy to compare
4) We admit physical limitations but not cognitive limitations
5) Irrational behavior is predictable
It occurs over & over again => we are robotic

18. Got Awareness?

19. AP Econ Course Review

20. Always someplace else?

21. Is College Worth It?