Written by the Fiveable Content Team • Last updated September 2025
Verified for the 2026 exam
Verified for the 2026 exam•Written by the Fiveable Content Team • Last updated September 2025
Definition
Behavioral economics is a field of study that combines principles from psychology and economics to understand how people make decisions, especially in situations where they don't always behave rationally.
Related terms
Anchoring Effect: This refers to the tendency for people to rely too heavily on the first piece of information they receive when making decisions. For example, if you see a shirt originally priced at $100 but now on sale for $50, you might consider it a great deal even if it's not something you really need.
This concept describes our tendency to strongly prefer avoiding losses over acquiring gains. In other words, we feel more pain from losing $100 than we feel pleasure from gaining $100.
It refers to our tendency to seek out and interpret information in ways that confirm our existing beliefs or hypotheses. For instance, if someone believes that all politicians are corrupt, they may only pay attention to news stories that support this belief while dismissing evidence against it.