2 Individual economic decision making Flashcards
Define utility
the amount of satisfaction or benefit that a consumer gains from consuming a good or a service
Define rational consumer
consumes a good/service only if perceived satisfaction is greater than, or equal, to price
Define marginal utility
the satisfaction gained from consuming an additional unit of a good/service
Define diminishing marginal utility
when individuals consume more units of a good/service, the additional units give successively smaller increases in total satisfaction
Define imperfect information
when economic agents do not know everything they need to know to make fully informed decision
Define asymmetric information
when one of the parties do not have the same information as others to make perfect decision
Define Bounded Rationality
when people try to behave rationally but are restricted by factors such as lack of time
Define Bounded self control
when individuals lack the self-discipline to see their rational good intentions
Rule of Thumb
thinking shortcuts or informed guesses, that individuals use to make decisions in order to save time and effort
Anchoring
the tendency of individuals to rely on particular pieces of information when making choices between different goods and services
Availability bias
when people make judgments about the probability of events by recalling recent instances
Social Norms
when individuals are influenced by others when making decisions
Alturism
individuals are motivated to do the right thing, even if this means paying more for a good/service
Choice architecture
influencing consumer choices by the way the chices are presented
Framing
influencing consumer choices by the way words and numbers are used
