How do behavioral economists view people differently than traditional economists?

• A. Behavioral economists believe people often make decisions that deviate from perfect rationality due to biases and heuristics.
• B. Behavioral economists assume people always maximize utility with complete information.
• C. Behavioral economists believe markets always reach equilibrium instantly.
• D. Behavioral economists argue that people never respond to incentives.

Answer: (A)

Verified step by step guidance

1. Understand the traditional economic assumption: Traditional economists typically assume that individuals are perfectly rational, meaning they always make decisions to maximize their utility given complete information.
2. Recognize the behavioral economics perspective: Behavioral economists challenge this assumption by incorporating psychological insights, suggesting that people often rely on heuristics (mental shortcuts) and are influenced by cognitive biases.
3. Identify the key difference: Behavioral economists believe that due to these biases and heuristics, people sometimes make decisions that deviate from perfect rationality, which can lead to systematic errors in judgment.
4. Note the implications: This means that unlike traditional models, behavioral economics accounts for imperfect information processing and emotional factors affecting decision-making.
5. Summarize the contrast: Therefore, behavioral economists view people as boundedly rational agents who do not always maximize utility perfectly, unlike the traditional view of fully rational agents.