Behavioral Economics Flashcards
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What is bounded rationality?
It suggests that in making decisions, there are limits on consumer rationality. Consumers do not always have complete information for every decision. Sometimes they do not act in a self-interested way, and often they take short cuts and have biases that can reduce the quality of their decisions.
What is bounded self-interest?
is an idea that comes from behavioural economics. It says that while consumers can be selfish, this is not always the case. Their decisions can be affected by other beliefs like fairness and a desire to help others.
What is bounded willpower?
is an idea from behavioural economics, and says that sometimes consumers do not have the necessary willpower or determination to make rational decisions. Instead, they can end up taking the easy and less rational option, which may not be in their best long-term interest and, hence, may later regret their choice.
What is herd behaviour?
is an idea from behavioural economics and suggests that, sometimes, consumers just follow what the rest of their peers are doing, rather than reaching their own rational decision.
What is framing bias?
is an idea from behavioural economics. It says that consumer choices can depend on how the same information, facts or ideas are presented. It can be used to increase the likelihood that a particular choice will be made.
What is anchoring effect?
Anchoring is an arbitrary starting or reference point that affects a consumer’s perception. It is used by consumers to make a judgement, comparison, assessment or ranking of possible choices. It can be used by businesses to manipulate consumer choice.
What is status quo?
is a short cut and an aspect of behavioural economics where consumers fail to examine all the options instead, sticking with what they have previously decided.
What is vividness?
is an aspect of behavioural economics where in making decisions, consumers place undue weight on just a small piece of information that stands out and catches their eye. Other important considerations in a decision are downplayed, so this can lead to irrational decisions.
What is overconfidence?
is an aspect of behavioural economics where in making decisions, consumers overestimate their current state of knowledge or skill and, hence, sometimes make ill-founded and non-rational choices.
What is present or short-term bias?
Present bias can lead people to make irrational decisions that favor short-term gains, often at the expense of long-term well-being
What is narrative fallacy?
an aspect of behavioural economics where consumers can be sucked into various scams, simply because of the plausible and impressive way information is presented, often focusing on a story with few facts.
What is the nudge?
s a marketing idea drawn from behavioural economics. It involves providing a gentle reminder, a prompt, or something that catches attention and seeks to alter people’s behaviour in a predictable and wanted way, without forcibly limiting their choices.
