Behavioral Economics For Dummies
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Make Smart Financial Decisions and Avoid Impulsive Investing Mistakes
We all think that we make financial and economic decisions based purely on rational self-interest and conventional wisdom, but the truth is that a whole host of subtle and not-so-subtle factors contribute to our financial and purchasing choices, whether we’re aware of it or not. They’re the reasons we can make impulsive investment mistakes, why stock markets sometimes plunge so dramatically, and why governments make certain policy decisions.
Morris Altman, professor at Victoria University of Wellington and author of Behavioral Economics For Dummies (Wiley; February 2012; $25.99; Paper) says that behavioral economics – the study of how social and psychological factors such as social pressure, – is key to understanding our financial and economic decisions, and to making better ones in the future.
“Behavioral economics doesn’t assume that people must or even should behave in a way that’s deemed rational by conventional economics,” says Altman. “The fact is, more often than not, people behave in ways that aren’t consistent with the conventional wisdom.”
That’s not to say that conventional economics have no place in the economic and financial world – quite the opposite. It’s the addition of behavioral economics that enriches our traditional ideas by using insights from the fields of psychology, sociology, the law, neuroscience, and politics. “We end up with more vibrant and revealing economic analyses based on more realistic assumptions about how individuals behave in the real world and the real-world circumstances that influence the decisions they make,” says Altman.
Morris Altman is available for interviews and can speak about:
- The explanation of recessions and stock market plunges, from a behavioral economics perspective;
- The top 3 lessons that behavioral economics can teach us about making financial decisions;
- Using the principles of behavioral economics to improve one’s finances;
- How emotions, culture, past experiences, etc. affect our decisions;
- How one’s gender and age affects our choices;
- The relationship between the economy and happiness;
- How investment firms can use behavioral economics to improve productivity.