Aspects of behavioural economic theory Flashcards
What is bounded rationality?
Bounded rationality refers to the idea that individuals make decisions based on limited information and cognitive limitations, leading to satisfactory rather than optimal choices.
What is bounded self-control?
Bounded self-control describes the difficulty individuals have in resisting short-term temptations, often resulting in choices that do not align with their long-term goals.
What are “rules of thumb” in decision making?
Rules of thumb are simple heuristics or mental shortcuts that individuals use to make decisions quickly, but they can lead to biases and suboptimal outcomes.
What is the anchoring bias?
The anchoring bias occurs when individuals rely too heavily on the first piece of information encountered (the “anchor”) when making decisions, which can skew their judgment.
What is the availability bias?
The tendency to judge the likelihood of events based on how easily examples come to mind, often leading to overestimating the probability of memorable or recent events.
What is loss aversion?
The psychological principle that losses loom larger than gains, meaning individuals prefer to avoid losses rather than acquire equivalent gains.
What are social norms bias?
The influence of perceived social norms on behavior, leading individuals to conform to the behaviors or beliefs of others, even if they conflict with personal judgments.
Why are altruism and perceptions of fairness important in behavioural economics?
Altruism influences individuals to consider the welfare of others in their decision making, while perceptions of fairness affect cooperation and trust in economic transactions, impacting overall market efficiency.
