A review on behavorial economics and anchoring effect

The mainstream view of economics has defined man as a rational being. It suggested that acted in order to maximize the rational human benefit. Economic theory and policies were shaped according to these arguments. It was logical and necessary to make these models for economics, which is a social science. But it was a controversial issue to always act rationally and try to maximize its benefits. By the mid-20th century, developments in other disciplines that dealt with the decision-making of the individual, especially psychology, began to affect the economics methodology more closely. With the leadership of Herbert Simon, economists also started the institutional construction of behavioral economics with the analysis of human psychology. Behavioral economics basically tries to explain how people make decisions when they are not rational and the reasons for deviations from rationality. The study consists of three parts. In the first part, the differences has been mentioned between behavioral economics and neoclassical economics. In the second part, the concepts of rationality, bounded rationality, and utility that affect the decision making of the individual has been discussed. In the third and last chapter, heuristics and biases that cause deviations from rationality has been discussed and the effect of anchoring these heuristics is examined. The anchoring effect has been examined by a survey study and the findings were interpreted in the light of previous studies.