1.2.10 - alternative views of consumer behaviour Flashcards
What is rational decision-making failure?
The rational decision-making of economic agents fails systematically in three common ways: computational weaknesses, habitual behaviour, and social/external influences.
What are computational weaknesses in decision-making?
Computational weaknesses refer to problems recognizing and defining the true net benefit of a choice.
What is bounded rationality?
Bounded rationality is the idea that the cognitive decision-making capacity of economic agents is not fully rational because they hold limited information, have limited time to make decisions, and have limited cognitive power to process every piece of information and consider every possibility.
What are the reasons for bounded rationality?
Bounded rationality occurs because economic agents: hold limited information, have a limited amount of time to make decisions, and have limited cognitive power to process every piece of information and consider every possibility.
What is habitual behaviour in economic decision-making?
Habitual behaviour refers to choices that are made automatically based on routine rather than consideration of net benefits.
What are heuristics in economic decision-making?
Heuristics (‘rule of thumb’) refers to mental shortcuts that economic agents use to allocate their scarce resources instead of calculating optimal solutions for every decision they make.
Why do economic agents use heuristics?
Economic agents use heuristics because they have bounded rationality, meaning they lack the capacity to fully evaluate every decision.
What are social and external influences in economic decision-making?
Social and external influences are factors that impact decision-making outside the power of an economic agent.
What is choice architecture?
Choice architecture refers to a scenario in which the environment has been carefully designed to try and influence a decision.
What are social norms in economic decision-making?
Social norms refer to the prevailing customs and accepted behaviours that influence economic agents’ day-to-day decision-making in markets.
What is herd behaviour?
Herd behaviour refers to when economic agents make decisions based, in part, on the actions of those around them.
What are commitment contracts?
Commitment contracts involve the imposition of a penalty, often by oneself, if an individual fails to meet a goal.
What is priming in economic decision-making?
Priming refers to how behaviour is often subconsciously influenced by cues that affect decisions and lead individuals toward making specific choices.
What is anchoring in decision-making?
Anchoring is the use of irrelevant information as a reference point when making an estimate about an unknown piece of information.
