Introduction

Economics is a collection of ideas and conventions which economist accept and use to explanation with. Economics is traditionally conceptualizes a world populated calculating. Unemotional maximizes that have been dubbed home economics. The standard economics framework ignores or rules out virtually all the behaviors studied by cognitive and social psychologist. Economics is the study of how societies use scarce resources to produces valuable goods and services and distribute them among different individuals. From the above definition it is known or can be explain that society uses the resources to according to their choice and their behavior of making the decisions to use the resources in the best possible way to get maximum satisfaction. This shows that the behavioral economics takes great place in the behavior human or society in making economic decision. Now, Behavioral Economics has emerged as one of the most important sub-field of economics or we can say that behavioral economics has gone beyond mere academic curiosity because it is touching nearly every field of the economics. At the center of the behavioral economics is the assurance that increasing the realism of the psychological foundation of economic analysis will improve the field of economics on its own terms by the way of making better prediction of field phenomena and suggesting better policy. Behavioral economics is the method of economic study that applies emotional human behavior approach to explain the economic decision making. Behavioral economics is an approach to economic analysis that incorporates the psychological insight into the individual behavior to explain economic decisions. Behavioral economics is motivated by the observation of anomalies that cannot be explained by the standard models of choice. It provides an explanation for the anomalies by introducing human and social cognitive and emotional biases into the decision making process. In most cases behavior is still modeled through the maximization of utility subject to constraints the difference between traditional economics and behavioral economics being in the form of the utility function.

Behavioral economics refers to the attempt to increase the explanatory and predictive power of economic theory by providing it with more psychologically possible foundations The definition of behavioral economics in my mind is how people react, and the economic decisions they make, in any given financial framework, ( January 2012 Investment Advisor)

In simple terms, Behavioral economics is an area of economics that combines on the way from the psychology with traditional economics models to more accurately reflect decision-making by consumer and other economic agents. Behavioral economics is a wider term for a range of approaches that is used to understand and explain observed consumer behavior more accurately than the traditional economic theories prediction. Traditional economics is based on the assumption which is completely different, rational and self-interested, manner. It is generally thought that peoples should use all the information available to them and behave in the relevance of the information and their preferences. While taking the decision they should be aiming to maximizing the their usefulness to get the maximum satisfaction. Behavioral economics is a new line of psychology called behavioral decision that draw detailed and noticeable between the describe realistic account of judgment and choice and assumption and prediction of economics. Behavioral economics is a perfect example of interdisciplinary thinking, as ideas which are first developed by the psychologist which have come to inspire the all models of economics. This trendy economic theory shows how emotions, instincts, and biases shape our behavior while making economic decision. Behavioral economics makes it clear that while taking decision one must make assumption about the relation between the preference and the behavior that is used in making the welfare principle. It is not obvious at all that an agent which is perfectly rational the sense he uses to take decision to maximize his function that the function utility should be considered into the welfare consideration. The standard economic model of human behavior includes three unrealistic traits unbounded rationality, unbounded willpower, and unbounded selfishness all of which behavioral economics modifies.

Bounded Rationality

The term bounded rationality (Herbert Simon, 1995) to describe a more realistic conception of human problem solving ability. The failure to incorporate bounded rationality into economic models in just bad economics the equivalent to presuming the existence of a free lunch. Since We have the only so much brain power and only so much time, we cannot be expected to solve difficult problems optimally. It is eminently rational for people to adopt rules of thumb as a way to recognize on cognitive faculties. Yet the standard models ignore these bounds. Rationality is the characteristics of any action, belief, or desire that makes their choices a necessity. However the term bounded rationality tends to be used differently in different disciplines, including specialized discussions of economics, sociology, psychology and political science. A rational decision is one that is not just reasoned, but it also most favorable for achieving a goal or solving problems. Determining optimally for rational behavior requires a scientific formulation of the problems, and the making of several key assumptions. When the goal or problems involves making a decision, rationality factors in how much information is available. Collectively, the formulation and the background assumption are the models within which rationality applies. For example: If one accepts a model in which benefiting oneself is optimal, then rationality is equated with behavior that is self-interested to the point of being selfish, where ass if one accepts a model in which benefiting the group is optimal, then purely selfish behavior is deemed irrational. It is thus meaningless to assert rationality without also specifying the background model assumption describing how the problem framed and formulated.

Quality of Rationality
It is believe that a good rationale must be independent of emotions, personal feelings or any kind of instincts. Any process of evolution or analysis that may be called rational is expected to be highly objective, logical and mechanical. If these minimum requirements are not satisfied. i.e. if
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a person has been, even slightly, influenced by personal emotions, feelings, instinct or culturally specific, moral codes and norms then the analysis may be termed irrational, due to the injection of subjective bias.

Theoretical and practical Rationality

Many economists have made a parallel distinction between theoretical and practical rationality, although, according to him, reason and rationality are not the same: reason would be a psychological faculty, whereas rationality is an optimizing strategy. Humans are not rational by definition, but they can think and behave rationally or not, depending on whether they apply, explicitly or implicitly, the strategy of theoretical and practical rationality to the thoughts they accept and to the action they perform. Theoretical rationality has a formal component that reduces to logical consistency and a material component that reduces to empirical support, relying on our inborn mechanisms of signal detection and interpretation. Practical rationality is the strategy for living one s best possible life, achieving your most important goals and your own preferences in as far as possible. Practical rationality has also a formal component, and a material component, rooted in human nature.

Bounded Self-Control
The second vulnerable tenet of standard economics, the assumption of complete self-control. Humans, even when we know what is best, sometimes lack self-control. Most of us, at some point, have eaten, drunk, or spent too much, and exercised, saved, or worked too little. Though people have these self-control problems, they are at least somewhat aware of them: they join diet plans and buy cigarettes by the pack (because having an entire carton around is too tempting)

Finally, people are boundedly selfish. Although economic theory does not rule out altruism, as a practical matter economists stress self-interest as peoples primary motive. It is assumed that an

individuals cannot be expected to contribute to the public good unless their private welfare is thus improved. But people do, in fact act selflessly.

Applications of Behavioral Economics

THE BEHAVIORALIST GOES TO SCHOOL

A long line of research on behavioral economics has established the importance of factors that are typically absent from the standard economic framework: reference dependent preferences, hyperbolic preferences, and the value placed on non-financial rewards. To date, these insights have had little impact on the way the educational system operates. Behavioral economics has the power to influence the educational performance. Several insight emerge that incentive framed as losses have more robust effects than comparable framed as gains. Non-financial incentives are considerably more cost-effective than financial incentives for younger students, but were not effective with older students. Finally, and perhaps most importantly, consistent with hyperbolic discounting, all motivating power of the incentives vanishes when rewards are handed out with a delay. Since the rewards to educational investment virtually always come with a delay, our results suggest that the current set of incentives may lead to underinvestment.

BEHAVIORAL ECONOMICS AND HEALTH ECONOMICS

Behavioral economics offers some concepts and analytical tools that fit well with the institutions of the health sector. The doctor-patient decision-making context of limited information, a noisy health production function, fear, anxiety, insurance coverage and trust is well suited to the concerns of behavioral economics. relatively simple models of the physician-patient interactions can be extended using ideas from behavioral economics to enrich the ability to understand and develop empirical models of health care markets. The issues identified go to the core concerns of health economics. These include: how information affects
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equilibrium quality in health care markets, how physician competition might affect prices and quantities, what produces persistent variations in treatment patterns across markets and the associated welfare losses, and what explains racial and ethnic disparities in health care. The emphasized role of behavioral economics in extending positive models of health care markets. Behavioral economics offers direction for addressing long standing impasses in positive health economics. There are also important normative implications. Clearly, if doctors and patients make the types of context specific choices and cognitive errors described here demand functions can no longer be given the normative interpretations that are common even in health economics.

MATCHING CONTRIBUTIONS AND SAVINGS OUTCOMES: A BEHAVIORAL ECONOMICS PROSPECTIVE

Including a matching contribution increases savings plan participation and contributions, although the impact is less significant than the impact of nonfinancial approaches. Conditional on participation, a higher match rate has only a small effect on savings plan contributions. In contrast, the match threshold has a substantial impact, probably because it serves as a natural reference point when individuals are deciding how much to save and may be viewed as advice from the savings program sponsor on how much to save. Other behavioral approaches to changing savings plan outcomesincluding automatic enrollment, simplification, planning aids, reminders, and commitment featurespotentially have a much greater impact on savings outcomes than do financial incentives, often at a much lower cost.

Traditional economic models fail to incorporate the many psychological frictions that impede savings, including present bias, complexity, inattention, and temptation. In many cases, countering these frictions leads to increases in saving plan participation and asset accumulation that surpass the effects of a typical matching contribution, potentially at a lower cost.

Behavioral Economics for Competition Policy

The existence of behavioral biases does have a number of implications for the way in which markets work. Behavioral biases on the consumer side emphasize the importance of the demand side in making markets work well, and the important synergies between consumer policy and competition policy. Behavioral biases may also have implications for anti-competitive behavior. In spite of this, behavioral economics does not necessarily imply more intervention. Markets can often solve their own problems and even where they can't, there are dangers inherent in over paternalism limiting consumer choice. Behavioral economics also emphasizes the difficulties that authorities can have in trying to correct for such biases.

Behavioral economics and consumer behaviour in financial services

The insights afforded by behavioral economics are of great interest to policymakers and practitioners in financial services. the implications of behavioral economics for elements of consumer behaviour may help in fashioning a choice architecture that is more likely to bring the desired consumer responses. From a commercial perspective, the objective is to use the lessons provided by behavioral perspectives to enable companies to present choices in a manner that maximizes take-up of products and services, encourages or engineers ongoing behavioral loyalty and thereby helps to cement relationships between firms and customers. From the policymakers perspective, insights from behavioral economics may be used to encourage consumers to engage with financial services to a greater degree and to make increased levels of provision in areas such as pensions and other saving and, while doing so, to make ongoing investment decisions which are in the consumers long-term interests.

Behavioral finance
Behavioral finance is to finance what behavioral economics is to economics. Behavioral finance, rather than being an entirely separate field, is an applied branch of behavioral economics. This is because behavioral finance has very close connections to behavioral economics, especially to

psychological economics; many behavioral finance practitioners are also behavioral economists by virtue of their research and their economics Ph.D.s. Behavioral finance is much less narrow

than mainstream finance. Because behavioral finance practitioners borrow heavily from the social sciences, especially psychology, their characterization of human behavior in financial markets does not suffer from mechanical mess. On the contrary, they tend to see the human participants in financial realms as fallible. Behavioral finance is certainly not separate from other social science disciplines; it is very similar to psychological economics in this sense. Although BF researchers do focus on individual decision making and the factors that cause it to be rational or not, the societal and market context is considered in BF. Therefore, it is relatively low on individualism.

Behavioral game theory

Behavioral game theory is a research area concerned with how people play games. Games are situations in which a person (or firm) must anticipate what others will do and what others will infer from the persons own actions.Analytical game theory is a mathematical derivation of what players with different cognitive capabilities are likely to do in games (Camerer, 2003, p. 2). . In contrast, behavioral game theory concerns how people actually behave when playing games and considers departures from rationality. Behavioral game theory is not listed here as a BE strand because it is appropriately classified as a branch of PE. Further, because it relies to a great extent on experimental methods, it overlaps with experimental Economics.

Behavioral Models of Managerial Decision-Making

applying behavioral biases to managers is an important and growing area of study. Several particularly promising areas for future work, which we summarize below: a) Theory and lab research on the impact of fairness on a broader range of managerial decisions, including welfare analysis. b) Theory and lab research on social preferences, particularly in coordination games.
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c) Research on the effect of social preferences on managerial behavior using data from the field in order to understand the broader applicability of the laboratory-generated results.

d) Research on how alternative utility functions, aside from social preferences, might affect managerial behavior. Examples include self control, context effects, inattention, and reference dependence. e) Research that applies the computational and equilibrium selection advantages of alternative solution concepts such as cognitive hierarchy to help solve coordination games, in theory and in structural empirical work. f) Field work that examines the conditions under which we observe bounded rationality by managers in games, including disclosure games, entry games, technology adoption games, and others. g) Theory and lab work on the biological basis of economic behavior, which can in turn help discipline existing theory and inspire new models. h) Field work on the role of overconfidence in manager decisions and firm performance.

CONCLUSION
Behavioral Economics have helped me understand how people make buying decisions. Micro economics tells you how rational people will make decisions but people are not rational. There are a lot of emotional reasons for taking a decision. Mob psychology and behavioral components play a part. At an organizational level a lot of purchasing decisions can be explained by behavioral economics. It teaches an overview course on behavioral economics and a course on behavioral finance. Behavioral and experimental concepts infuse many other field courses, from development economics to public finance, health, education, games, income, consumer behavior in market and so on. From the above it is known that the behavioral economics is the important part and vital part of the economics. It is the new but the very
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Reference
Samuelson, Paul A & Nordhaus, William D, Economics 19th edition Mc Graw Hill, What is economics? January 2012 Investment Advisor The definition of behavioral economics

Camerer,colin 2003, p. 2, Behavioral game theory Conlisk, John, Journal of economic literature.Vol.34(2). p699-700. June 1996 Why bounded Rationality? Dhar, Ravi, and Stephen M. Nowlis. 1999. The Effect of Time Pressure on Consumer Choice Deferral. Journal of Consumer Research 25(4): 369-84

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