Akarsh Jayaprakash

19BBS0067

HUM1046 Behavioral Economics

B1+TB1

Digital Assignment 1: Economics and Psychology

Student Name: Akarsh Jayaprakash

Student ID: 19BBS0067
 Akarsh Jayaprakash
19BBS0067

A very informative session was conducted by Dr Nancy Kurian on the correlation between
economics and psychology. The first thing explained in the lecture was the effect of peer
pressure on our lives and how it plays a major role in the decision-making process of any
individual. The lecture further continued and explained the basis of cognition, biases and
depression for a person. I also learnt about the various kinds of Intelligence namely, emotional,
academic, social and adversity.
Emotional intelligence refers to the ability to monitor, understand and act upon emotions.
Academic intelligence refers to the academic abilities of an individual. Social Intelligence refers
to the ability of person to understand and manage interpersonal relationships and finally
Adversity quotient refers to the way how an individual responds to difficult situations.
After learning about the types of intelligence we moved forward to learn about Heuristics. This
is defined as Mental shortcuts for making various decisions. Using heuristics has a lot of
benefits like reduction of effort in making any decision, attribute substitution and fast decision-
making process. Heuristics simplifies decision making process rules of thumb or cognitive
shortcuts. It's a practical method, but may or may not be optimal but is sufficient to make quick
decisions. Further diving into the details of Heuristics, there are three types of heuristics
namely Representative, recognition and availability heuristics. The representativeness heuristic
involves estimating the likelihood of an event by comparing it to an existing prototype that
already exists in our minds. Recognition Heuristics involves making choices among a set of
alternatives by placing higher value on the alternative that you recognize. The availability
heuristic describes our tendency to use information that comes to mind quickly and easily when
making decisions about the future.
After the discussion on Heuristics the speaker started a new topic which were Biases and
investments. Here we learnt about the effects of various biases on the investment plans of an
individual. First bias is behavioural bias, in this the investors are driven by emotions and biases
while investing in stock market. This makes a mistake to suffer the losses and unable to make
profit through proper analysis before investing. There are various Biases that an investor needs
to be aware of, those are: Availability heuristic, herd mentality, confirmation bias, recency bias,
familiarity bias, loss aversion and over-confidence.
 Akarsh Jayaprakash
19BBS0067

Availability heuristic happens when an investor tends to rely on past experience and examples
that strikes instantly to mind while analysing any data or information related to investing in a
stock.
Confirmation Bias occurs when investor suffers from confirmation bias when they already held
a belief or view over a particular stock and then look out for additional information to confirm
their belief.
Familiarity Bias- Here the investor prefers the familiar one over the novel, this leads to the
investor to concentrate the investments in what is familiar, which sometimes might not be the
best available option.
Herd Mentality- In this investor decides to invest in a stock because people around them are
doing so.
Loss aversion- Refers to the investor’s tendency to avoid losses in any situation. Their
perception of always gaining profits in the stock market make them lose hope and unable to
withstand the bear market loss.
Over-confidence- This refers to a person’s overconfidence in one’s abilities or judgement. This
leads one to believe that one is far better than others at something, whereas the reality may be
quite different, which causes the investor to lag in fundamental and technical stock analysis.
Moving towards the final section of the lecture, which focussed on Consumer Behaviour.
Consumer Behaviour refers to the selection, purchase and consumption of goods and services
for the satisfaction of their wants. There are various factors influencing consumer behaviour,
they are as follows:
Cultural Factors, which involves culture and sub-cultures. Social factors such as reference
groups, family and role and status of people.
Personal factors such as life cycle and occupation and finally, psychological factors which
depends on perception and learning about the things.