Behavioral Economics Flashcards
Behavioural economic theory definition
A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices.
Rational economic behaviour definition
When humans make fully informed, logical decisions to aim to achieve the maximum economic gain.
Cognitive bias definition
A mental error that is consistent and predictable.
Confirmation bias
Tendency to seek only info that matches with what you already believe and only seeing the positives in a product you really want.
Anchoring
Info given earlier on heavily influences a later decision.
Loss aversion
People feel losses much more than gains.
Availability bias
When people make judgements about the likelihood of future events according to how easy it is to recall examples of similar events.
Altruism
When we act to promote someone else’s wellbeing.
What is a frame?
The way choices are described and presented.
What are behavioural nudges
An alternative to taxes and subsidies to influence choices.
Utility definition
The satisfaction or economic welfare an individual gains from consuming a good or service.
Marginal utility
The extra satisfaction gained from consuming one extra unit of a good.
Constraints of maximising utility
Money, Availability, Time, Prices
Status-quo bias
When people prefer things to stay the same by doing nothing or sticking to a previously made decision.
Post-purchase rationalisation
Where someone over looks faults with an expensive or not worth it product to justify purchase.
