Standard Microeconomics versus Behavioral Economics

The purpose of this discussion is to understand the differences between mainstream rational economics and behavioral economics, the different positions of both theories and the behavioral economics critique on the rational choice theories. This paper therefore discusses the role of behavioral economics in the reasoning and decision making process. This paper argues that behavioral economic is the better approach in explaining human behavior as opposed to rational choice theory. Standard Microeconomics (Rational Choice Theory) Microeconomics theory is birthed in the study of a single individual who is both rational and utility maximizing. This is to means; it explains an individual who has his own preferences which are both transitive and complete. Although preference and choice are known to be an important factor in determining the conduct of a person, they are not easily amendable in the short term which makes them somehow incapable of explaining the short term behavior changes of a person.

The need for restrictions is to limit the room for maneuver and all the other options that are available to them. Behavioral Economics Behavioral economics is a novel development in economics which was birthed to challenge most of the assumptions that are found in the rational choice approach. The goal of behavioral economics is to analyze the psychological foundations of economics and account for them more realistically. Its aim is to provide a better psychological foundation and the explanatory power to the economic model (Earl 385). The second theory in question is the self-interest theory. In actual sense, it is true that people don’t always act in line with their best self-interest but with the influence of other factors including fairness and mutual benefit.