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Economics:
Economics is the scientific study of how a man makes use of scarce resources to produce and distribute goods and services to satisfy Behavioral-and-Neo-Classical-Economics his wants. In accordance with John Stuart Mill, a homo economicious (economic man) is filled with a desire of possessing wealth.
Here the term wealth does not merely refer to attainment of money however it includes all the luxuries and other accumulations. At the same time, he is capable of doing that through continuous learning and acquiring modern comparative techniques as humans have wanted such as the desire to own a car or a house and to produce the items that he wants, different variety of resources are supposed to be used. Whereas unfortunately human wants are unlimited but available resources are limited.
Thus this creates a problem whereby the available resources are not enough to produce the things that are desired which gives rise to the problem of scarcity that can only be managed with the help of detailed knowledge and intellect.
Nonetheless, an economic man concentrates on his self-interest only whereas while doing that he can also end up working for the interests of general public unintentionally. (Rabi, 1996)
An American Journal of Economics and sociology elaborates that the evolution of homo economicus involves a huge journey from the philosophical age Behavioral-and-Neo-Classical-Economics to neoclassical economics. After entering into the neoclassical age he endeavours to utilize existing resources to fulfil his demands and needs in a more practical way by predicting and estimating the possible outcomes.
The journey of a homo economics in the neoclassical age is more about self interest and for this purpose, he turns towards learning novel and useful skills and enhancing his intelligence in order to achieve his objective of self sufficiency. (Irene and Tseng, 2008)
Behavioural Economics:
Economics is a useful area of study in many ways. With economic knowledge, you will be able to understand the basic workings of demand and supply and how the prices of goods are determined in the market. Economic terms like inflation, taxation and the balance of payments will also begin to make sense then. ( Camerer and Loewenstein, 2002)
Behavioural economics is more about the actual behaviours observed in the field of economics. It does not rely on the existence and following of rationally accepted ideas and beliefs however it accepts the actual behaviour of an economic man. (Rubistein, 2006)
Behavioral-and-Neo-Classical-Economi one of the new additions to this field is the introduction of Behavioral finance. Although it is included in the financial studies the basic idea was derived from the concepts of behavioural economics and its uses in the world.
The day to day finance includes the standard financial planning and financial reports.Behavioral-and-Neo-Classical-Economics.Statistics show that a business which plans its future is more likely to have a future because, through either financial or any other type of planning, one can look at the possible alternative futures for your business, consider what is required to achieve those futures and opt for the one you consider the best. The plan is then modified to fit the changing circumstances.
The users of financial reports include investors, employees, lenders, suppliers, and other trade creditors, customers, governments and other agencies and the public. So, Behavioral and Neo Classical Economics financial reports are used by everyone related to the firm, either internal or external user.
Investors and lenders, who are significant users, are interested in the financial position.Behavioral-and-Neo-Classical-Economics.They are interested in the financial position to see what assets are available to cover liabilities and to generate gains from the owners. They are interested in the profitability because a business needs to generate profit in order to cover interest, grow, add value for the owners and pay dividends.
They are interested in the cash flow because in the short run and long run an entity needs to generate cash in order to meet its expenses and repay liabilities. However, the behavioural finance includes the difference between the impact of rational agents and comparatively less rational agents.
It compares the changes caused by both on the security prices in a financial market. Behavioural finance also affects the concept of dividend policy adopted by any listed company. (Jo and Kim, 2008) Listed companies are a group of companies that are listed on a stock exchange.
These companies provide an opportunity for the common public to be a part of the company by purchasing their shares and hence they are called as shareholders of the company.
Neo-Classical Economics:
Neoclassical economics includes the impact of rationality and irrationality on the decisions taken by the agents in the financial markets.
The uses of both the approaches of rationality and irrationality can be observed in any financial market. Some people rely on rationality while making their decisions whereas some go for irrationality approach to attain their objectives. The neoclassical approach supports the..
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