Mapping Irrationality
An Introduction To Behavioral Economics
The mind is like an iceberg, it floats with one-seventh of its bulk above water — Sigmund Freud
On September 9, 2017, Richard Thaler earned the Nobel prize in Economics for his contributions to the field of behavioral economics. That very same week Bitcoin surged above $5000 while Jamie Dimon proclaims Bitcoin investors are stupid. How are the two developments related? Think of how emotions such as fear, greed and anger affect business outcomes and asset bubbles.
Behavioral economics, along with behavioral finance, has come to occupy an important place in explaining financial markets and asset prices. In a way,both disciliplines try to explain how human thought works using economic models. Perhaps, the future of behavioral economics is closely tied to the advances in Artificial Intelligence. At the end, both social science and science are attempting to recreate human behavior.
This article explains how behavioral economics affects your life and how it can help you understand forces that affect your financial and economic well being.
The Foundations
Economics is a study of choice. Choices have to be made because most humans have finite…
