Why is the theory of behavioral economics considered revolutionary?

Answer 1

The theory of behavioral economics is considered revolutionary because it challenges the traditional economic assumption that individuals are fully rational decision-makers. Instead, it incorporates insights from psychology to explain how cognitive biases, emotions, and social influences affect economic choices. This approach provides a more realistic understanding of human behavior, leading to better predictions of consumer actions and more effective policy interventions. By acknowledging the complexities of human decision-making, behavioral economics reshapes how we understand markets and economic systems.