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Economic Rationality from Behavioral Economics View with Emphasis on Financial Markets
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Davod Manzoor   , Mojtaba Taheri * |
| , moj.taheri@gmail.com |
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Abstract: (8183 Views) |
| Providing realistic economic analysis requires that we take into account limitations and complications of human behavior. In this paper, we show that one can't explain the economic behaviors, only relying on rationality assumption, which is the basis of conventional economic analysis. In conventional economics, the rationality presumption has been defended on numerous grounds. Some claims that rationality-based models are easier to formalize and implement. Others believe that a set of market and non-market factors such as competition, evolution and learning, leads economic decision-makers to a rational behavior. However, in this paper we would show that, a realistic analysis of economic behavior can't be provided just relying on rationality presumption, and ignoring human behavior limitations. Some economists combine economics and psychology to analyze the behavior of economic institutions. We will discuss the evolution of approaches regarding to this integration and will have a look on latest results in this field. Then, we will explain three basic behavioral limitations, which must be considered in economic analysis: bounded rationality, bounded willpower, and bounded selfishness. Then, as practical evidence, we will mention examples of irrational behaviors in financial markets. These examples indicate that there are numerous cases in which human behavior deviates from conventional models expectations. |
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| Keywords: Economic Rationality, Behavioral Economics, Bounded Rationality, Bounded Willpower, Bounded Selfishness. |
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Full-Text [PDF 327 kb]
(7924 Downloads)
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Type of Study: Research |
Subject:
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