Behavioral economics challenges traditional theory from "summary" of The Economic Naturalist by Robert H. Frank
Traditional economic theory assumes that individuals make rational decisions based on self-interest. This theory suggests that people carefully weigh the costs and benefits of different choices before making a decision. However, behavioral economics challenges this assumption by demonstrating that human behavior is often influenced by psychological biases and heuristics. These biases can lead individuals to make decisions that are not in their best interest, contradicting the predictions of traditional economic theory. For example, traditional economic theory cannot explain why people frequently procrastinate when faced with important tasks. According to the rational model, individuals should always prioritize tasks based on their importance and urgency. However, behavioral economics shows that procrastination is a common phenomenon because people tend to prioritize short-term pleasure over long-term goals. This behavior is not consistent with the rational decision-making framework proposed by traditional economic theory. Furthermore, traditional economic theory assumes t...
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