The Basics of Behavioral Economics

 

Behavioral Economics pic
Behavioral Economics
Image: investopedia.com

An experienced financial services professional, Manuel Maximino has held multiple senior administrative posts with offices of Deutsche Bank in both New York City and London. He currently heads structured and fixed-income trading in Latin America as a managing director. Both inside and outside of the professional arena, one of Manuel Maximino’s interests is behavioral economics.

Within the field of decision theory, behavioral economics applies the science of psychology to the economic decisions made by people and organizations. Behavioral economists ask two fundamental questions: First, do economists’ assumptions about profit maximization mirror the behavior of real people? And second, how do consumers perceive specific economic opportunities in the presence of economic risk (a phenomenon identified in decision theory as “subjective expected utility”)?

Behavioral economics places a specific focus on explaining why consumers make irrational decisions and exhibit irrational behavior that deviates from the predictions of established economic models. Notable behavioral economists include the Nobel laureates Gary Becker, George Akerlof, Herbert Simon, and Daniel Kahneman.

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