Monday, 18 October 2021 | 05:18 WIB

Deconstructing Human Irrationality through Behavioral Economics

Professor Richard H. Thaler (wikimedia)

JAKARTA, NNC - Humans, including me and you and everyone else, basically like to think irrationally or irrational. So says Prof. Dan Ariely - behavioral economics expert - in his famous book Predictably Irrational.

During this time, we always feel that we always thinking rational and objective. Unfortunately, this feeling is just a fantasy.

We as human beings turn out to have so many biases or thinking errors that we often do not realize, and make our decisions in many ways that become chaotic.

What are the thinking errors? Let's snatch this bright morning.

This morning, I was inspired to write an article about the science of Behavioral Economics because last week one of the experts, Prof. Richard Thaler was crowned as the Nobel laureate of the economy 2017.

Prof. Richard Thaler who is also a lecturer at the Faculty of Economics University of Chicago, is a figure who is considered as the Father of Behavioral Economics.

Behavioral science economics itself is one of the new branches in economics. The basic premise of behavioral economics is: the human being is irrational, and likes to include the emotional element in economic decision making.

The view is of course the antithesis of conventional economics which has had human assumptions are always rational in taking economic decisions.

That is why many conventional economists are somewhat embarrassed by behavioral economics: because this approach makes the classical economic assumptions collapse and collapse.

Behavioral science economics itself is built through a combination of economics and psychology. That is why the gods in behavioral economics are mostly psychologists such as Prof. Daniel Kahneman (who also won the Nobel economics of 2002), and Prof. Richard Thaler himself.

Through research conducted by behavioral economics experts, found a variety of bias or systematic thinking error which often slipped behind our hearts.

The silence of the various biases makes our decision making no longer objective and rational. The bias makes us - me and you - repeatedly errors that are systematic, and often make our lives nyungsep in the darkness of fate.

There are many types of error thinking traced in behavioral economics research. I will try to review 5 of them. Let's track while accompanied by a cup of warm tea on the next pages.