Behavioral economics is the field of economics that:

• A. analyzes the impact of government policies on market equilibrium
• B. focuses exclusively on the allocation of scarce resources
• C. studies how psychological factors influence economic decision-making
• D. examines only rational choices made by individuals in markets

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of behavioral economics. It is a subfield of economics that integrates insights from psychology to explain why individuals sometimes make decisions that deviate from purely rational behavior.
2. Step 2: Recognize that traditional economics often assumes individuals are fully rational and always make decisions to maximize their utility, but behavioral economics challenges this assumption by considering psychological influences.
3. Step 3: Identify that behavioral economics studies how cognitive biases, emotions, and social factors affect economic decision-making, which can lead to outcomes different from those predicted by classical economic models.
4. Step 4: Note that behavioral economics does not focus exclusively on government policies or only on resource allocation, nor does it assume all choices are rational; instead, it broadens the analysis to include real human behavior.
5. Step 5: Conclude that the correct characterization of behavioral economics is that it studies how psychological factors influence economic decision-making.