2.3 - aspects of behavioural economic theory

Question 1

what is bounded rationality

Answer 1

rationality is limited due to
asymmetric information
time available
computation weakness

Question 2

what is bounded self control

Answer 2

individuals have limited self control

Question 3

what are the biases in decision making

Answer 3

rule of thumb
anchoring
availability bias
social norm

Question 4

what is anchoring

Answer 4

using a reference point, that is normally irrelevant to current decision, to form the basis of a decision

Question 5

what is availability bias

Answer 5

when we attach an emotional connection to an event in our head which can make the likelihood of a similar event occurring more or less in our head

Question 6

what is rule of thumb

Answer 6

a rough guide of rules that ease the process of decision making eg - always choosing the cheapest option

Question 7

what are social norms

Answer 7

generally accepted modes of behaviour that we often make our decision conform with, they can change over time
eg - 40 year ago drink driving was generally accepted when it is not now

Question 8

what is altruism

Answer 8

making decisions to maximise others welfare, not your own