behavioral-economics

Human Nature is not a problem that can be fixed by rules and regulations. All solutions to the existing problems must be based on how people behave, not on how we think they should behave.

The individual benefits as an individual from his ability to deny the truth even though society as a whole, of which he is a part, suffers.

In fact quite generally, commercial advertising is fundamentally an effort to undermine markets. We should recognize that. If you__e taken an economics course, you know that markets are supposed to be based on informed consumers making rational choices. You take a look at the first ad you see on television and ask yourself _ is that it__ purpose? No it__ not. It__ to create uninformed consumers making irrational choices. And these same institutions run political campaigns. It__ pretty much the same: you have to undermine democracy by trying to get uninformed people to make irrational choices.

There is ample evidence that confirmation bias permeates throughout investors' decisions. For example, once an investor likes a stock, he is likely to seek out information that validates that stock. In a 2010 study, researchers showed that investors used message boards to seek out information that validated rather than challenged, stocks they owned (Park et al. 2010). If we own a stock, we tend to look for anything that validates our decision to buy it, and to reinforce why we should keep holding it.

Rather than be fearful and sell out at the worst time or get greedy when the market is way up, investors should control their emotions and not only avoid panic, but embrace the market volatility for what it is: an opportunity and a gift. Suffocate the instincts that want to make you a bad investor and rather embrace the chaos that normally causes them to rise to the surface.

Neoclassical economics has effectively insulated itself from the great advances made in science and engineering over the last 40 years. This self-imposed isolation must come to an end. For while the concepts of neoclassical economics appear difficult, they are actually quaint in comparison to the sophistication evident in today's mathematics, engineering, computing, evolutionary biology and physics. In order to advance, economics must humbly submit to learning from disciplines that it has studiously ignored for so long. Some researchers in outside fields have called for the wholesale replacement of standard economics curricula, using at least the building blocks of modern thought inherent in other disciplines.

From this failure to expunge the microeconomic foundations of neoclassical economics from post-Great Depression theory arose the "microfoundations of macroeconomics" debate, which ultimately led to a model in which the economy is viewed as a single utility-maximizing individual blessed with perfect knowledge of the future.Fortunately, behavioral economics provides the beginnings of an alternative vision of how individuals operate in a market environment, while multi-agent modelling and network theory give us foundations for understanding group dynamics in a complex society. These approaches explicitly emphasize what neoclassical economics has evaded: that aggregation of heterogeneous individuals results in emergent properties of the group, which cannot be reduced to the behavior of any "representative individual." These approaches should replace neoclassical microeconomics completely.