how is behaviour discouragement beneficial to the economy.
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When it comes to money, humans are not rational creatures. Behavioural economics uses subtle prods to shift our bad habits.
The average interest rate on credit card debt in Australia is about 17 per cent, so logic would dictate that households should direct any spare cash to paying it off.
Yet although almost half of households have at least A$10,000 in savings (according to figures from ME Bank), the credit card debt clock run by the Australian Securities and Investments Commission reveals the average Australian still owes about A$4250 on their plastic. Many households willingly carry high-interest debt despite having the means to pay it off.
This sort of habit is one of the puzzles that intrigues Richard Thaler, professor of behavioural science and economics at the University of Chicago Booth School of Business. Thaler is seen as one of the founders of behavioural economics, and in 2017 he was awarded the Nobel Prize in Economics for his work challenging conventional economic wisdom about how people behave.
Traditionally, economists constructing economic theories have treated people as well-informed, self-interested and driven to make choices solely according to what delivers them the greatest possible material benefit. (Of course, even the most hardline economists realise this is not how most people do things in real life, but some still say such gross characterisations are necessary to help understand how markets work.)
Thaler, however, has for decades drawn on insights from psychology to show how people act in ways that are rational to them – just not in the ways assumed by economists.
His work on mental accounting, for instance, shows how people think of purchases in relative terms rather than the absolute terms that many economic theories assume.
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The average interest rate on credit card debt in Australia is about 17 per cent, so logic would dictate that households should direct any spare cash to paying it off.
Yet although almost half of households have at least A$10,000 in savings (according to figures from ME Bank), the credit card debt clock run by the Australian Securities and Investments Commission reveals the average Australian still owes about A$4250 on their plastic. Many households willingly carry high-interest debt despite having the means to pay it off.
This sort of habit is one of the puzzles that intrigues Richard Thaler, professor of behavioural science and economics at the University of Chicago Booth School of Business. Thaler is seen as one of the founders of behavioural economics, and in 2017 he was awarded the Nobel Prize in Economics for his work challenging conventional economic wisdom about how people behave.
Traditionally, economists constructing economic theories have treated people as well-informed, self-interested and driven to make choices solely according to what delivers them the greatest possible material benefit. (Of course, even the most hardline economists realise this is not how most people do things in real life, but some still say such gross characterisations are necessary to help understand how markets work.)
Thaler, however, has for decades drawn on insights from psychology to show how people act in ways that are rational to them – just not in the ways assumed by economists.
His work on mental accounting, for instance, shows how people think of purchases in relative terms rather than the absolute terms that many economic theories assume.
plz mark as brainliest
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