B2.02.04: Cognitive Biases

Question 1

Explain what cognitive biases are and why they are used

Answer 1

Demand decision are completely out of control and not based on perfect info; it’s incapable to estimate the true level of utility derived.
- Therefore, consumers use cognitive biases to influence decision-making in the absence of time, energy and concentration required to make rational decisions

Question 2

Define axiomatic

Answer 2

• Self-evident (something that is true)

Question 3

Define the rule of thumb bias

Answer 3

• An approximate method for doing something based on practical experience than theory

Question 4

Define bounded rationality

Answer 4

• Refers to how in reality, a person is either not able to or not willing to seek information that would help them understand the true value and worth of a decision

Question 5

Define bounded self-control

Answer 5

• refers to how in reality, a person is not able to control their consumption to the quantity that maximises their satisfaction

Question 6

Define bounded selfishness

Answer 6

• Refers to how the rational consumer theory assumes the consumer is making their buying decisions based on their own level of satisfaction rather than others

Question 6

Define availability bias

Answer 6

• Refers to how often we base our decision-making on recent information or images rather than look at a choice in its entirety

Question 7

Define framing bias

Answer 7

• Refers to how our decision-making is highly influenced but he presentation of the choice

Question 8

Define anchoring bias

Answer 8

• An individual’s decisions are influenced by a particular reference point or anchor