Behavioural Economics - An Introduction

Behavioral Economics is a emerging field which draws a lot of attention. This is a social science which is a combination fields of Economics and Psychology.Comprehensive research on this has been conducted first by Daniel Kahneman and Amos Tversky.
Behavioral Economics basically question the fundamental assumptions of Traditional economics they are :
1. Markets are efficient.
2. Human being make a rational decisions.
The fundamental assumptions of Behavioral Economics are quite opposite. They are :
1. Markets are inefficient.
2. Human being behave irrationally.
These irrational behaviour in our recent memory is 2008 recession and dotcom bust, where investors invested into shares without considering their Valuation.
One of the important concept in Behavioral Economics is 'Prospect Theory' which says

A theory that people value gains and losses differently and, as such, will base decisions on perceived gains rather than perceived losses. Thus, if a person were given two equal choices, one expressed in terms of possible gains and the other in possible losses, people would choose the former. 

Also known as "loss-aversion theory."
Behavioral Economics tend to explain why under a circumstance why an individual or company makes a particular choice.

 

China Economy is Struggling

It is rightly said that " When China sneezes, world catches cold" , The economy which has been an engine of World GDP growth for over a decade is showing signs of slowdown . Official forecast for GDP growth of current year is pegged at 7% but as per movement of railway cargo, electricity consumption  growth can be around 2%.
Economies around the world which flourished on China's demand for commodities are facing recession eg. Brazil is facing recession due to high debt, expanding current account deficit, Depreciating currency.
Among the emerging economies India is in a good position to take advantage as its macro indicators are in much better position compared to other emerging markets
The two factors which are currently affecting world economy are China growth and Federal Reserve rate hike, New insights can be drawn from developments coming in the month of September.