Question

Behavioral Economics argues in favor of which of the following views of human behavior:

Multiple Choice

• Individuals will always choose options that maximize their personal satisfaction.

• Individuals are fully aware of their own innate biases and take them into account when making economic decisions.

• Individuals are not always rational in the pursuit of their own self interest

• Individuals react identically when making decisions regarding profitable investements and unprofitable investments

Answer 1

Behavioral economics draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models. Decisions such as how much to pay for a cup of coffee, whether to go to graduate school, whether to pursue a healthy lifestyle, how much to contribute towards retirement, etc. are the sorts of decisions that most people make at some point in their lives. Behavioral economics seeks to explain why an individual decided to go for choice A, instead of choice B.

Because humans are emotional and easily distracted beings, they make decisions that are not in their self-interest (unlike ratioanl choices theory).

Hence, the correct answer would be - individuals are not always rational in the pursuit of their own self interest.