Which of the following best describes the field of behavioral economics?

• A. It studies how psychological factors influence economic decision-making.
• B. It focuses exclusively on the allocation of scarce resources.
• C. It assumes individuals always act rationally to maximize utility.
• D. It analyzes only the impact of government policies on market outcomes.

Answer: (A)

Verified step by step guidance

1. Understand that behavioral economics is a subfield of economics that integrates insights from psychology to explain why individuals sometimes make decisions that deviate from purely rational behavior.
2. Recognize that traditional economics often assumes individuals act rationally to maximize utility, but behavioral economics challenges this assumption by considering psychological, cognitive, emotional, cultural, and social factors.
3. Evaluate each option by comparing it to the core idea of behavioral economics: the study of how psychological factors influence economic decision-making.
4. Identify that the option stating 'It studies how psychological factors influence economic decision-making' aligns best with the definition of behavioral economics.
5. Note that the other options either describe traditional economic assumptions or focus on specific areas like resource allocation or government policy impact, which are not the primary focus of behavioral economics.