4.1.2 Individual Economic Decision Making Flashcards
Define Imperfect Information
Where consumers do not possess all the information required to make fully informed decisions . Makes it difficult for economic agents to make rational decisions
Define Asymmetric Information
A source of information failure where one economic agent knows more than another , giving them power in the market transaction.
Define bounded rationality
Is the idea that people try to behave rationally but are restricted , due to unreliable information and limited time available
Define bounded self control
Is the idea that individuals lack the self discipline to see their rational intentions through
Define Anchoring
The idea that individuals rely n particular pieces of information, like price, when making choices about a good or service
Define availability bias
Is the idea that people make judgements about the probability of an event by recalling recent events
Define rules of thumb
Is the idea that individuals make shortcuts or guesses to save time and effort
Define social norms
Is the idea that people are influenced by others when making decisions
Define Altruism and perception of fairness
Is the idea that individuals are motivated to do the right thing , even if it means paying more for a good or service.
How do economists interact with traditional theories
Question the reliability of traditional theory that people are rational decision makers who maximise utility , instead there is an element of bias
Define choice architecture and framing
Is the idea that customers choices are influenced by the way choices and numbers are presented
Define Nudges
Is the idea that consumer behaviour is influenced by gentle suggestions
Define Default choices
Is the idea that socially desirable choices are set as default , e.g. pension enrolment
Define Mandated choices
Is the idea that people are legally required to make a choice
Define restricted choice
Is the idea of giving customers a limited number of options when making a choice
