Question

Shlomo Benartzi begins his talk by outlining three things that we as a people are not doing well. What are these three things? Do you agree or disagree with his evaluation of these things?

What is behavioral finance? What does behavioral finance have to do with personal and family finance?
What are some of the behavioral obstacles that influence personal finance as described by Benartzi?
What is Benartzi’s solution to all of these behavioral challenges that effect personal finance? How does improved personal finance benefit the economy in general?
What Can We Learn from Teetering on the Fiscal Cliff

Based on what Davidson says, how would you describe the term ’fiscal cliff’?
Davidson describes two fundamentally different economic philosophies that both impact the debt crisis that the US faces. What are these philosophies? Do you agree with one more than the other?
Davidson offers several solutions to the major issues, stating that fiscally we are actually not a nation that is divided on the major issues. What are some of the fiscal solutions that he mentions tweaking?
While Davidson outlines several issues that the parties are actually not terribly divided on, he also outlines two issues that are hyper-partisan. What are these fiscal issues and why do you think that the parties are so divided? Do you lean towards the Democrat or Republican view on these issues?
Towards the end of his talk, Davidson discusses a fear. What is this fear? How does this fear, as well as his entire discussion of the fiscal cliff, relate back to economic factors that influence our personal finances?

Answer 1

Behavioral economics integrates psychology into economic decision-making, acknowledging non-rational influences on financial choices. Shlomo Benartzi proposes solutions for personal finance, which can boost the economy. The 'fiscal cliff' relates to drastic fiscal measures, and Nicholas Davidson highlights the impact of economic philosophies and behavioral obstacles on the debt crisis.

Step-by-step explanation:

Behavioral Economics and Fiscal Policy

Behavioral economics is a field that blends insights from psychology into economic decision-making. It acknowledges that individuals may not always act in a purely rational manner as traditional economic models suggest; instead, emotions and psychology influence economic choices. For instance, concepts like optimism or loss can affect financial decisions in ways that may seem irrational to outsiders, but make sense to the individual based on their personal experiences and state of mind.

Behavioral economists like Shlomo Benartzi discuss not only these irrational behaviors but also propose solutions to address them in personal finance. Improved personal finance, according to Benartzi, contributes to the broader economy by ensuring individuals make better financial decisions, which can lead to overall economic growth and stability.

Turning to the discussion on fiscal policy, the term 'fiscal cliff' refers to a situation where a number of fiscal measures, such as tax increases and spending cuts, were set to take place simultaneously at the end of 2012, potentially leading to a significant reduction in the budget deficit but also a risk of economic recession. The economists Friedrich Hayek and John Maynard Keynes represent two different economic philosophies; one that emphasizes the role of the government in managing the economy, and another that believes in the self-regulating nature of free markets.

Nicholas Davidson discusses solutions around finding middle ground in fiscal policies to address the nation's debt crisis, suggesting there is less division among major issues than portrayed. On the other hand, he identifies highly partisan issues like taxation and government spending as points of deep division between Democrats and Republicans.

Behavioral obstacles, personal finance, and the economy are deeply interconnected; as individuals improve their fiscal responsibility, it can lead to a stronger, more resilient economy.