Behavioral Economics

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Behavioral Economics
Cicero Seisdedos

PB535 – Business and Financial Literacy
Professor: Dr. Nancy Wood, PhD
December 09, 2012

Introduction
Behavioral Economics is an extremely important field of psychology; it seeks to expand the current tools that researchers use in economics and finance to introduce new models of human behavior that are adequately founded in psychological research. The Behavior Economics is crucial in business decision making process. The knowledge in Business and Financial Literacy is very important for their direct application to Business and Consulting Psychology. Understanding Financial Management which includes: profit & loss, cash flow, balance sheets, ratios, ROI, working capital, budgeting, financial planning, and corporate finance; and Business Management that includes: business strategy, strategic market management, micro-economic analysis, sustainable competitive advantage, strategic positioning, diversification, acquisitions, mergers, and technology management, will allow the consultant to help businesses increase their profits and improve their company’s culture. Business Management and Strategy

Business Strategy is a management plan of action that an organization put in place in order to achieve a particular goal or a set of goals and objectives, this strategy can help the organization differentiate itself from its competitors. In order for a company to differentiate itself from their competitors, they need to successfully implement a strategy that will determine the market that the business will compete, the investment needed, the strategies required to compete in that specific market and the strategic resources or competencies that underline the strategy by providing a important sustainable competitive advantage (SCA) (Aaker, 2001).  Budgeting and Financial Planning

There are many vital managerial tools that assist in managing a successful business. Budgeting is the most common and widely used tool for planning and control; it is essentially a guideline that focuses on spending, it can breaks down all the business’ expenses in different categories, per example, utilities, payroll, taxes, materials, equipment, etc, also all the income that the business expect to receive in a certain period of time, this period of time is usually yearly, monthly or sometimes weekly. Once the manager has all the estimated income and expenses for that period of time, the budget will start to take shape. The budget goal is to subtract all the expected expenses from the expected income for the same period and still have a positive cash balance. A budget should not be a rigid and fixed tool from which you may never deviate (Wood, 2012). The Financial Planning focuses on allocating resources efficiently, specifically achieving long range goals. In summary, while the budget focuses on the daily functioning of the organization, the future depends greatly on the financial planning which in turn relies on budgeting in order to be effective. Corporate Finance 

The Corporate Finance addresses how organizations face their financial obligation, to intelligently invest their resources, achieve the correct combination of financing to fund their investments and return a profit to the investors; hence achieving value maximization. When a company invests in a project or multiple projects, this project will generate expenses and will create revenue for the company, but what is a project? Project is any activity that generates a series of cash flows for the organization. The company uses the revenue in excess of expenses to fund new projects, improve existing projects or pay its investors (Spiegel, 2000). Per example, applying a low-cost strategy, businesses can remove all frills and extras from its products and services (Aaker, 2001), making the organization more competitive and profitable. Financial ratios 

The Financial Ratios are practical indicators of a company’s financial and performance...
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