BE Assignment

-Shreyansh Agrawal (19P052)

What are the major differences between traditional economics and behavioral
economics?  Use a story from your own life to explain your answer.

Traditional economic theory has three fundamental assumptions:

1) all people are rational
2) individual choices are consistent with expected utility theory
3) people correctly update their opinions and beliefs based upon new information that is
received
However, these assumptions are not always true in the real world. A lot of biases, heuristics
and other psychological phenomena are also present while making a decision which might
result in a person doing something different from what the traditional economics would
suggest.
To illustrate this, I want to talk about a very recent example.
During the lockdown, Flipkart had started a game of “Bid and Win” on its app. Basically, the
game requires people to bid for a new product every day and those who have the most
unique and lowest bid are given various prizes.
Now, traditional economics suggest that people would behave rationally and go to a shop
when they would want to buy something, and in case of online shopping- they would visit
different websites to compare prices. However, I have found myself doing something else
for the last two months.
I downloaded the Flipkart app just for playing this game, but have found myself going to
that app frequently to check out new products even though I don’t have anything specific in
mind. Moreover, whenever I want to order something, I almost always go to the Flipkart
app without looking for the same product on different websites.
Moreover, I have realised that my orders online and specifically from Flipkart have gone up
since I downloaded that app.
This is not what would have happened had I not downloaded the app, which made me
change my behaviour.