In modern economics, people often analyze rational and irrational behavior. The psychology of perception and behavior has at the economic and financial life of the business society and create systematic deviations from rational behavior. Therefore, in this discussion we decided to talk about behavioral economics. Yunyan He, Professor, PhD of Beijing Language & Culture University and Guangxi University for Nationalities and Lev Garamov, financial expert of Russia and EU countries answered our questions.
Epigraph: What is behavioral economics, and what characteristics about it do we need to know?
Yunyan He: I study the basics and behavioral economics strategy at Cambridge University now. Behavioral economics is a new science that combines two sciences: psychology and economics that analyze emotional factors, strategies for making economic decisions and consumer behavior. At modern marketing often have to use behavioral economics to interest consumers. For example, discounts on sales have a good impact on the consumer and they want to buy any product. In this case, the effect of behavioral economics on price formation is especially visible.
Epigraph: What does a behavioral economics make in the financial sector?
Lev Garamov: investor behavior is often guided by irrational decisions. The main aspect of the decisions made is often motivation. The behavior of investors often depends on emotional factors and they want to take risks. Behavioral aspects of businessmen have in innovation, for example, in 2017, when there was a “top” of the ICO - projects.
Epigraph: How important is behavioral economics in marketing?
Lev Garamov: some methods are successfully used in marketing. For example, holding free forums and seminars and members can then become your customers. I used this method that worked quite effectively. This is where the psychological aspect works which is difficult to explain and behavioral economics studies it. Free programs are of interest and in 90% of cases events are attended. There is even a quote: “Everything free gives us emotional energy and we see the offer more valuable than it really is.” This is a great way to present your products and services to potential consumers in business.
Epigraph: What is a fundamental behavioral economics?
Yunyan He: behavioral economics is based on irrational decisions. Scientifically, and with practical examples, it has been proved that people cannot always follow elements of the neoclassical economy and often show irrational behavior. We can say that irrational behavior is not chaotic but definitely predictably and statistically has a certain model. It was said by Dan Ariely, a professor of behavioral economics at the Massachusetts Institute of Technology in Cambridge.
Epigraph: And what makes a behavioral economy in the banking credit sector?
Lev Garamov: I would say that serious. Consumers more often want to borrow at interest than to spend their own, "free" funds. And here one of the theories of behavioral economics works - the irrationality of decisions. Professional bankers, investors, managers use this method to sell their services. We need to say that the Bitcoin trade specifically prodemoded social preferences as irrationality and, if there is no total self-control, can affect the economic decisions made by people.
Epigraph: does it mean that on the stock market a lot depends on emotional factors?
Lev Garamov: I think that “emotional stability” is the basis of successful investments. But, we have to say that emotions dominate the stock market. Of course, emotional behavior on the stock exchange is a negative factor for the investor. However, a new crisis or bad news shows how emotion dominates the stock market. For example, if the share price of oil companies falls, emotional behavior of investors is demonstrated. And the fall of bitcoin is a characteristic emotional factor in behavioral economics.
Epigraph: could you comment on behavioral macroeconomics?
Yunyan He: neoclassical macroeconomics does not give an accurate description of economic phenomena. It should be noted that the neoclassical theory does not recognize involuntary unemployment. One of the founders of macroeconomics, John Maynard Keynes, believed that involuntary unemployment was the result of restrictions on demand in the labor market.
Lev Garamov: of course, if you look from the practical side, it seems that any unemployed person can find a job if he offers his services at a cheaper market price. Recently, in Russia, deputies often say this. We cannot agree it, because now there is a period of cyclical unemployment in the country due to the decline in production and the industrial crisis (depression). This is the phase of the economic cycle, which is characterized by a deficit of total expenses. And this happens when the demand for goods and services falls, employment decreases, and as a result, unemployment rises. Cyclical unemployment is the result of a shortage of demand.
Yunyan He, Professor, PhD of Beijing Language & Culture University and Guangxi University for Nationalities
Lev Garamov, financial expert of Russia and EU countries answered our questions.