This week I talked to my mentor about my essential question during our half way feedback session. I came to the conclusion, with the help of Tom’s guidance and talking to my mentor Ana, that my project has focused a lot on behavioral economics. My internship provides a good insight into what practices are in place at a successful company and how those companies make decisions in order to better themselves. With Tom’s help I have also been looking at the consumer side of my project through the study of behavioral economics.
The field of behavioral economics blends ideas from psychology and economics, and it can provide valuable insight that individuals are not behaving in their own best interests. Behavioral economics provides a framework to understand when and how people make errors. Systematic errors recur predictably in many circumstances. Studying behavioral economics informs the work I do at my internship because lessons from behavioral economics can be used to create more successful environments.
The rational person is assumed to correctly weigh costs and benefits and calculate the best choices for himself. The rational person has perfect self-control and can restrain impulses that may prevent him from achieving his long-term goals. Traditional economics uses these assumptions to predict real human behavior. This brings the idea that we should give people as many choices as possible, and let them choose the one they like best, with minimum government intervention, because they know their preferences better than government officials do.
However, behavioral economics shows that actual human beings do not act that way. People have limited cognitive abilities and a great deal of trouble exercising self-control. People often make choices that conflict with what is actually good. They tend to choose the option that has the greatest short term appeal but this cost of long-term benefits.
Neuroscientists argue that the mind consists of many different parts (mental processes), each operating by its own logic. This proves there is no dominant decision-maker. Behavioral economics attempts to integrate psychologists’ understanding of human behavior into economic analysis.
At the start of my project, I was hoping to look at only the business side of all of this. How business make decisions, however, I have realized that in order to understand businesses I need to understand their consumers. This brought me one step closer to answering my essential question.