alternative views of human behaviour

Question 1

What is Behavioural economic

Answer 1

Behavioural economics looks at the psychological reasons behind why people make decisions

Question 2

What is bounded rationality

Answer 2

Bounded rationality suggests that when people make decisions they are limited by:

The information available to them

Their intellectual limitations

The time available to make decisions

Question 3

What are social norms

Answer 3

Social norms are the rules of behaviour that are considered acceptable within a social group

Question 4

Whats nudge theory

Answer 4

Nudge theory is an attempt to manipulate social norms through positive reinforcement in a non-coercive manner

Question 5

What does Maintaining the status quo lead to

Answer 5

means that economic agents might suffer from loss aversion.

making decisions based on avoiding loss rather than achieving gain

Question 6

whats an heuristic

Answer 6

An heuristic is a simple rule that individuals use to make a judgement when undertaking decision-making.

They normally focus on one aspect of a problem rather than looking at all the information available.

Question 7

computation meaning

Answer 7

computation, the ability to make correct decisions based on the information available to them

Question 8

How many heuristics did Tversky and Kahneman name that can lead to irrational behaviour by individuals:

Answer 8

3

Question 9

What are the 3 heuristics that can lead to irrational behaviour by individuals:

Answer 9

Availability – making judgements based on, particularly vivid, events we can remember rather than the information at hand

e.g. we might fear flying due to excessive media coverage but the likelihood of a plane crash is negligible

Representativeness – categorising based on past information rather than on the information at hand

e.g. a gambler might make a bet because they believe that they are in a run of good luck

Anchoring and adjustment – using an arbitrary starting number to estimate a different number. The starting number is the anchor and we tend to adjust an answer to be close to the anchor

e.g. Is the population of Brazil higher or lower than 100m? What is the population of Brazil? Often people will give a figure close to 100m