Economic Psychology: How Psychology Explains Irrational Choices Introduction: From the Rational "Economic Man" to the Real Traditional economic theory has long been based on the model of homo economicus — a rational subject who always acts in his own interest, possesses unlimited will, and has infallible logic. However, in reality, people systematically deviate from this model. Behavioral economics (behavioral economics) is an interdisciplinary field at the intersection of economics and psychology that studies how psychological, cognitive, and social factors influence economic decision-making. The emergence of this science is associated with the works of psychologist Daniel Kahneman and economist Amos Tversky, as well as with the research of Richard Thaler, who proved that human behavior is often predictable and irrational. In 2002 and 2017, they were awarded the Nobel Prize in Economics, confirming the scientific status of the discipline. Key Concepts and Mental Traps Behavioral economics has identified a number of cognitive distortions (heuristics) that govern our decisions. 1. Heuristics (psychological rules-shortcuts): Heuristic of availability: We assess the probability of an event based on how easily we can recall similar examples. After watching news about a terrorist attack, people tend to overestimate its risk, although statistically the probability of dying in a car accident is hundreds of times higher. Heuristic of representativeness: We judge something by its degree of correspondence to a stereotype, ignoring statistical information. For example, if a person is described as shy and pedantic, most people would call him a librarian rather than a salesman, although there are more salesmen objectively. 2. Prospect Theory of Kahneman and Tversky This is the cornerstone of behavioral economics. It shows how people evaluate potential losses and gains. Aversion to loss: The pain of losing 1000 rubles is subjectively stronger than the pleasure of gaining the same ... Read more