Econ Research: Cultural Diversity In Behavioral Economics

Cultural Diversity in Behavioral Economics
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Cultural Diversity in Behavioral Economics
Introduction
Behavioral Economics is the study of how psychology determines how institutions and individuals make decisions. The traditional model of economics tends to conceptualize a situation that is defined by calculations and unemotional factors. However, it is evident through study and experience that decisions made by an individual cannot be exclusively explained through calculations. In the ideal world scenario, individuals will always opt for options that provide them with the highest scale of experience and satisfaction. On an economic paradigm, the rational choice theory outlines that individuals tend to choose maximization of satisfaction under conditions that are defined by scarcity (Camerer, 2013). The latter stated approach assumes that individuals, under particular preferences and constraints will weigh between costs and benefits to make rational decisions. The rational choice theory is based on the assumption that an individual's rational choices are not defined by their emotions or external factors, and hence, go for the best decisions (Gino, 2015). On the other hand, behavioral economics opposes the rational choice theory by stating that persons are irrational in decision making, thus their choices may not be the best options.
The interaction between culture and economics is well factored in economic studies. However, studies in behavioral economics tend to ignore the importance of cultural differences. Cultural diversity is defined as differences in language, age, ability, nationality and other social demographics presented within a particular community. Most of the existing studies on cultural diversity are biased of the workplace environment. However, cultural differences are evident in both internal and external situations. This study aims to conduct a comprehensive literature review and discussion on the importance of cultural diversity from a behavioral economics point of view for business organizations.
Literature Review
Behavioral economics is a vast field of study. In recent times, the role of psychological considerations in the decision-making process has attracted several empirical and literature studies. Hence, there exist several kinds of literary works that support importance, relevance, and application of behavioral economics within microeconomics. Additionally, cultural diversity continues to receive extensive attention from researchers and scholars. However, there are limited sources of information that link cultural diversity to behavioral economics within organizational settings. Thus, this section relies upon a limited range of information sources to successfully meet the overall objective of this study.
Introduction to Behavioral Economics
Rational economics continued to manifest in most economic studies since the year 1957 when Howard Raffia, a mathematician started providing statics lessons to business students at Harvard University. With time, Raffia developed his teaching into decision making, characterized with Raffia’s decision-making tree (Camerer, 2013). Ronald Howard, an expert in statistical process coined the term &ld...