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About this book

This book explores human decision-making heuristics and studies how nudging and winking can help citizens to make rational choices. By applying the behavioral economics approach to political outcomes, it demonstrates how economics can be employed for the greater societal good.

It starts with a review of the current literature on human decision-making failures in Europe and North America, presenting the wide range of nudges and winks developed to curb the harmful consequences of human decision-making fallibility. It then discusses the use of mental heuristics, biases and nudges in the finance domain to benefit economic markets by providing clear communication strategies. Lastly, the author proposes clear leadership and followership directives on nudging in the digital age. This book appeals to scholars and policy makers interested in rational decision-making and the use of nudging and winking in the digital age.

Table of Contents

Frontmatter

Behavioral Foundations

Frontmatter

Chapter 1. Behavioral Economics

Abstract
Since the end of the 1970s, a wide range of psychological, economic, and sociological laboratory and field experiments proved human beings deviating from rational choices. Standard neoclassical profit maximization axioms were outlined to fail to explain how humans actually behave. Human beings were rather found to use heuristics in day-to-day decision-making. These mental shortcuts enable us to cope with information overload in a complex world. Behavioral economists proposed to nudge and wink citizens to make better choices with many different applications in very many different domains. This book will (1) start with a review of the contemporary literature on human decision-making failures in Europe and North America presenting the wide range of nudges and winks developed to curb harmful consequences of humane decision-making fallibility; then (2) propose how to use mental heuristics, biases, and nudges in the finance domain to profit from economic markets providing clear communication strategies; and then (3) finish with clear leadership and followership directives on nudging in the digital age.
Julia Puaschunder

Digital Behavioral Economics

Frontmatter

Chapter 2. Communication in the Twenty-First Century

Abstract
One of the most novel implications of heuristics, biases, and nudges addresses behavioral finance—a growing field concerned with how to improve financial well-being through the sound understanding of how people actually behave in markets. This part explains some behavioral finance techniques that can be used to enhance your financial gain by diversification, investing in crises-robust, long-term sustainable market options, demographics-based forecasting, saving money through tangibility and safe havens, or reaping benefit from outperforming market strategies. Particular emphasis will be given to investigating the role of information and communication for market reactions but also social influences in financial market management.
Julia Puaschunder

Behavioral Finance

Frontmatter

Chapter 3. Value at Looking Back

Abstract
Globalization led to an intricate set of interactive relationships between individuals, organizations, and states. Unprecedented global interaction possibilities have made communication more complex than ever before in history as the whole has different properties than the sum of its increasing diversified parts. With growing globalization and quickening of transfer speed, information may impose unknown systemic economic risks on a global scale. Collective interaction effects lead to hard-to-foreseeable fallacy of composition downfalls. Emergent risks imbued in interaction appear to be inherent in global economic systems. In the light of growing tendencies of globalization, the demand for an in-depth understanding of how information echoes in socio-economic correlates has gained unprecedented momentum. In seeking to shed light on implicit system failures’ socio-economic consequences down the road and potentially disastrous outcomes of cumulative actions triggering mass movements, the chapter outlines unexpected dangers and insufficiently described shadows of past market expectation corrections on future economic market performance.
Julia Puaschunder

Chapter 4. Financial Behavioralism: A Behavioral Finance Approach to Minimize Losses and Maximize Profits from Heuristics and Biases

Abstract
In an impressive line of experiments and field studies, the growing field of behavioral finance has offered behavioral insights on how markets deviate from rationality. Human actors are prone to base their investment choices on very many other factors than simply volatility and profit maximization opportunities. Most recently nudging has started using the emerging insights about human heuristics and biases to improve decision making in different domains ranging from health, wealth and prosperity, which are covered in the following chapters. The following part reviews some of the behavior insights gained in the last decades and shows ways how to profit from heuristics and biases.
Julia Puaschunder

Chapter 5. Market Communication

Abstract
Behavioral Finance is one of the most novel developments in Behavioral Economics. Since the end of the 1970s a wide range of psychological, economic and sociological laboratory and field experiments proved human beings deviating from rational choices and standard neo-classical profit maximization axioms that fail to explain how human actually behave. Human beings were rather found to use heuristics in the day-to-day decision making. These mental short cuts enable to cope with information overload in a complex world. Behavioral economists proposed to nudge and wink citizens to make better choices for them with many different applications in very many different domains. This chapter reviews and proposes how to use mental heuristics, biases and nudges in the finance domain to profit from markets.
Julia Puaschunder

The Future of Behavioral Economics

Frontmatter

Chapter 6. Artificial Intelligence and Nudging

Abstract
The introduction of Artificial Intelligence (AI) in our contemporary society imposes historically unique challenges for humankind. The emerging autonomy of AI holds unique potentials of eternal life of robots, AI and algorithms alongside unprecedented economic superiority, data storage and computational advantages. This chapter provides information on what impact AI taking over the workforce will have on economic growth. A theoretical background on standard neoclassical and heterodox economics growth theories will be given to be then empirically validated. The empirical results find that Internet connectivity is associated with economic growth decline whereas GDP per capita has no significant relation with GDP growth. The discussion closes with a future outlook on the law and economics of AI entrance into our contemporary economies and society in order to aid a successful and humane introduction of AI into our world.
Julia Puaschunder

Chapter 7. Discussion

Abstract
The book presented a first theoretical introduction of a utility theory of information sharing and privacy. Potential limitations are that some communication may not be integrated into the framework, such as nonverbal communication or emotional responses. In general, information exchange is very heterogeneous and vast international differences are assumed to exist. In addition, in what time online communication and under what circumstances decisions regarding communication and privacy are made remains a completely undiscussed topic.
Julia Puaschunder

Chapter 8. Conclusion

Abstract
The book presents a novel idea in connecting behavioral economics with political economy.
Julia Puaschunder
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