Behavioural Economics Towards Better Decision Making

Abstract

Often, Individuals try to choose the best feasible option but sometimes, they don’t succeed in doing so. They make mistakes. Also, the market exchange makes psychological factors cease to matter but many psychological factors matter even for the markets. In contrast to the traditional assumption of neoclassical economics that individuals are rational Homooeconomici, that always seek to maximize their utility and follow their “true” preferences, research in behavioural economics has demonstrated that people’s judgments and decisions are often subject to systematic biases and heuristics, and are strongly dependent on the context of the decision. The insights from behavioural economics (BE) are now a well-established feature in consumer research and policy. Today, in fields from health behaviour to pension saving, from investment decisions to food choice, from sustainable consumption to the design of warning signs, the empirical and theoretical insights of BE have become a cornerstone of understanding consumer behaviour, helping inform policymakers on how to nudge people to make better, smarter, healthier and more sustainable choices (World Bank, 2014). BE is concerned with the question of how people actually behave in decision-making situations and how their choices can be improved so that consumers’ welfare is enhanced. For the market, it is always crucial to enhance sales every next quarter, using appropriate strategies. This paper makes a humble effort to briefly review the transition of the neoclassical (optimising) decision-making towards newer and better insights into behavioural economics and discuss how the latter has influenced and enhanced consumer behaviour and consumer policy on one hand and marketing strategy on the other.