Behavioral Economics For Dummies

In this chapter, I explain why realistic assumptions are important for economic analysis

believe that the economy is going to hell in a handbasket, then dropping interest rates to zero won’t have much effect.

Behavioral economists have introduced animal spirits (people’s expectations of what may happen in the future) to help explain business cycles. In this way, emotions, intuition, and social context are introduced into the modeling of business cycles.

People tend to retaliate against unfair behavior and reward fair behavior when and where possible, and this can have tremendous consequences on how productivity is determined and how different levels of productivity are sustained over time.

Increasing income or wealth makes most people happier. But very often, how people are doing relative to other people also has a major impact on their level of happiness.

People don’t make decisions in isolation from society or, at a more micro level, in isolation from family and friends.

Governments only need to provide citizens with the capability to make good decisions.

if governments trust the individual to do the right thing, they need to arm decision makers with appropriate tools so that they’ll make the best possible decisions. This means making sure that people have accurate information, the means to locate and understand the information,

Very often, opting for the default is just one less obstacle to cross when making decisions. In a world of uncertainty, defaults also signal what is the right thing to do.

Most people will also gladly sacrifice some income and wealth to help others or to punish people they consider to be cheats and free riders.