Behavioral economics explores how individuals make financial decisions from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
Behavioral economics seeks to delve into the intricacies of how individuals make financial decisions. This field of study goes beyond traditional economic theories, which assume that individuals are always rational and make decisions based on maximizing their own utility. Instead, behavioral economics acknowledges that human behavior is often influenced by cognitive biases, emotions, and social factors.
By examining real-life financial decisions made by individuals, behavioral economics aims to uncover the underlying psychological mechanisms that drive these choices. For example, individuals may exhibit a tendency towards loss aversion, where they place greater importance on avoiding losses than on achieving gains. This can lead to suboptimal decision-making, such as holding onto losing investments for too long in the...
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