1.3 Micro Flashcards
What is behavioural economics?
Takes into account the social, moral and psychological factor of the economy
What are the seven types of behaviour in economics?
Rule of thumb Anchoring Availability Social norms Bounded rationality Bounded self-control Altruism and fairness
Bounded rationality?
The consumer has limited ability to process and evaluate information
The available information is unreliable
Bounded self-control?
Good intention but lack of self discipline e.g. gym
Anchoring?
Focusing on one piece of information e.g. price when purchasing clothing
Availability?
Making judgements based on the probability of events e.g. Rain
Social norms?
Influence on decision making e.g. peer pressure
Altruism and fairness?
Doing the right thing even though it may be irrational for the individual
Rule of thumb?
Thinking of shortcuts e.g. buying the same drink at a restraunt
What is the nudge theory?
An attempt to manipulate social norms through positive reinforcement
What is computation?
The ability to make good decisions based upon the information available to them
What is heuristics?
Used to make a decision- a simple rule of thumb
What are the three Kahneman heuristics that lead to irrational decision making?
Availability
Representativeness- Based on past information
Anchoring and adjustment-
