The study of human behaviour, which has traditionally come underneath the umbrella of psychology, would seem to have little relationship with economics.
But, as we be taught more about how the brain works via the dual disciplines of neuroscience and psychology, there's an growing marriage with the field of economics, with a view to better perceive how individuals make financial decisions.
This has developed considerably lately and is an emergent subject that deserves somewhat introduction and explanation.
The traditional view of economics and monetary choice-making
It's generally forgotten in economics that the sphere is supposed to be about the behaviour of people when making financial decisions.
The traditional economist's view is that the world is populated by unemotional, logical, determination makers, who always think rationally in drawing their conclusions. This view is underpinned by the understanding that human behaviour Switzerland displays three key traits: unbounded rationality, unbounded willpower, and unbounded selfishness.
This has at all times flown within the face of the findings of cognitive and social psychologists, who questioned these assumptions as far back because the 1950s.
With the rise of behavioural neuroscience because the Nineteen Eighties (especially Kahneman's work) offering more insight into the workings of the mind, we are now more sure than ever about the position that emotion and bias performs in all decision-making: from easy day-to-day selections like which dress to wear, through to larger selections that may have an effect on many people.
Overconfidence and optimism are examples of behavioural traits that will lead to sub-optimal financial decision-making, and divert from the traditional mannequin used. Individuals have also been shown to make poor choices, even after they know it is not for the perfect, due to a scarcity of self-control.
So this is the place behavioural economics has been able to step in and modify many of the beliefs of the traditional economic views.
What's behavioural economics - and how can it help?
Behavioral economics and behavioral finance research the results of psychological, social, cognitive, and emotional factors on financial decisions.
This may increasingly apply to people or establishments, and involves wanting on the penalties for market costs, dividends, and useful resource allocation.
Of the three traits of human behaviour included in the traditional model outlined above, unbounded rationality has received special focus, with new understandings in the field ensuing from neuroscience.
Understanding better how individuals arrive at monetary selections can help in lots of areas: from personal finance to organisations shaping products and trying to get more customer sign-ups; and from the vagaries of stock market trading through to governments and how they formulate financial legislation.