1.2.1 Irrational Behaviour Flashcards
define irrational behaviour
when people make systematic and persistent deviations from rational choice
what are the types of irrational behaviour
- emotional decision making
- herd mentality
- risk-seeking behaviour
define emotional decision-making
where people make choices based on feelings rather than logical analysis
define herd mentality
where people follow the crowd without thinking critically about their own preferences
define risk-seeking behaviour
where people make choices based on their emotional reactions rather than a rational assessment of the probabilities
explain loss aversion as a reason for irrational behaviour
people are more motivated to avoid a loss than to acquire a similar gain
explain anchoring bias as a reason for irrational behaviour
people focus on an initial piece of information and base their decisions around that, even if it is not the most relevant
explain framing bias as a reason for irrational behaviour
the way information is presented can influence people’s judgements and decisions
explain habitual behaviour as a reason for irrational behaviour
people develop habits around purchasing and consuming certain products, which can influence demand
explain confirmation bias as a reason for irrational behaviour
the tendency to seek out and remember information that confirms our existing beliefs and ignore information that contradicts them
explain heuristics as a reason for irrational behaviour
mental short cuts that many people use in their day-to-day lives to simplify complex decisions
explain default choices as a reason for irrational behaviour
the options that are automatically selected unless a person actively chooses something different
explain social norms as a reason for irrational behaviour
a rule or expectation of behaviour within a group that guides people
what is behavioural economics
recognises that humans are not always rational and can be influenced by a range of factors like, emotions, biases and social pressures
give two behavioural economists
- daniel kahneman
- richard thaler
