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Behavioural Economics


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An essay on behavioral economics, and why everyone should study it.

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Behavioural Economics

  1. 1. Behavioural EconomicsKelly KokaiselSeven principles for policy-makersPrinciple 1: Other people’s behavior mattersPrinciple 2: Habits are importantPrinciple 3: People are motivated to ‘do the right thing’Principle 4: People’s self-expectations influence how they behavePrinciple 5: People are loss-aversePrinciple 6: People are bad at computationPrinciple 7: People need to feel involved and effective to make a changeWhy should everyone study economics?Everyone should study economics. ‘Economics is part of everyone’s life’ [1]. There are numerousreasons for this, and I have outlined a few below. Economics talk about how we interpret the worldaround us. I believe that we, all of us on this planet including the Earth itself, are a system. We need tooperate sustainable in order for us to carry on into the future. For a system to operate sustainably,information must be transparent to all. Everyone must understand the parameters, the options, and theeffects of their decisions on the whole. Economics is one element of these parameters. Social structureand ecological structures need to be understood in conjunction with economics to account properly forour actions.Because people have power (to vote, to create, to destroy), and therefore they should be educated aboutthe context of the world in which their power matters. Politicians also have power, and they can use it onuneducated people to get them to vote for something that benefits the elite rather than the people.In an economy where people trade (work for money for goods and services), one needs to understandhow to value things, and how others value things in order for these trades to be meaningful.Understanding how these economics on a social scale affect us helps us to then look towards ourselvesand understand how our individual life is giving to and taking from our economy, and how we mightimprove our decision making skills. If we as individuals make educated decisions that put us into a goodjob (socially, economically, and environmentally), and we create better goods and services, and investour resources more wisely, then as a whole those benefits will be compounded and create much moregood for all, collectively.Understanding economics may lead an educated person to recognize missing pieces or holes in thetraditional economics teachings, creating opportunities to correct for things not accounted for, much likewhat carbon offsets do by recognizing that there is an unseen cost in consuming non-renewableresources that must be accounted for to be sustainable in the long run.This understanding of what economics accounts for, and does not account for, will provide us the toolswe need to make good decisions that will protect what we really value for a long time coming. ‘Really,economics is about what we desire and what we’re willing to give up to get it’ [2]. I think if we recognizewhat we desire, and what makes us truly happy, we will see that our culture has gone off track. We havebeen taught to desire things that make only a few happy (the elite), but if we are brought up to understandwhat makes us truly happy, it is then that we will benefit ourselves more, and the human race as a whole.
  2. 2. [1][2] Herman E. Daly, Joshua C. Farley, Ecological economics: principles and applications, pg. 3.