THE ROLE OF BEHAVIORAL ECONOMICS IN EXPLAINING CONSUMPTION DECISION

Abstract

The new economic approach starts from the idea that the individual does not need food, but feels the need to feed, or do not require newspapers, but feels the need of information. In this way, those who changes are not human preferences, but the way we satisfy them. At this stage of the paper, we explain the inconsistency in consumer preferences and the exceptions to the standard theory by making light upon what is called in behavioral economics: the effects of property, loss aversion and framing effects. In which concerns the standard economic model, it seems that there are discrepancies between objective measures of sources of comfort / discomfort and measures reported subjective sensations. Many defenders of classical model would argue that the measures are not reported subjective feelings of economic phenomena and therefore are not of interest to economists. However, when such feelings and sensations affect or may affect future decisions, things become relevant for the economy. Limited Rationality implies both that the agent is imperfectly informed decision-making in a complex and dynamic environment, and a limited ability processing.

Keywords

• standard model
• exceptions
• framming effects
• loss aversion.