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According to behavioural economics some economic phenomena are better understood when assuming that human beings are not fully rational.
This does not mean they are crazy - it means that they have limitations that affect their behaviour in some ways.
Unlike a robot or the so-called homo economicus, most people have difficulties with assessing new information.
Their choices, for example when it comes to stock investments, are hardly ever fully rational.
While most of the standard economic theory is normative, that means explaining how peopleSHOULD behave, behavioural economics is descriptive, explaining how people ACTUALLY behave.
For example, for more than 50 years, standard economic theory suggested that savers should hold stocks. Yet, in Germany less than 15% of savers actually do.
By incorporating psychological insights into economic theory, behavioural economics helps to explain non-rational behaviour and to better understand finance, labor markets and management practices.
A deeper understanding of the behavioural biases that make us different from robots and the homo economicus can help us make better decisions for our own professional and personal life.
No matter whether these decisions concern our finances, medical treatment or career choices, behavioural economics explains the gap between actual and rational behavior and tells us how to close it, so that actual behaviour and rational behaviour become one.
