Behavioral Economics Flashcards
what is behavioral economics
- behavioral economics disputes the idea that consumers are always rational and utility maximizing arguing that social and emotional factors affect decision making
what 4 factors bound consumer rationality
- Time
- cost
- information
- self control
what is Asymmetric information
when 1 party in a transaction has greater information than another
What is a cognitive Bias
Factors that affect decision making
Name all cognitive biases
Choice architecture, Framing, anchoring
Loss aversion availability bias
Social norms, bandwagon
What is Anchoring and Availability bias
anchoring - a value is implanted in our heads in which we will compare the value to
Availability bias - people inflate the possibility of something happing because they have seen or heard of it before
what are Social Norms and Framing
Social Norms - Rules that society dictate as normal (tipping in a restaurant)
Framing - Being influenced by the tone in which Data is presented
what is Choice architecture and the Bandwagon effect
Choice architecture - our decisions are influenced by the placement or positions of items
Bandwagon effect - following trends
what is loss aversion and the endowment effect
Loss aversion - real or potential loss is perceived as more severe that an equivalent gain
Endowment effect - placing more monetary value on something you own over the same object that you could gain
how can NUDGE policys be used to improve resource allocation
policy’s like default choice and choice architecture can influence people to make a utility maximizing decision
3 cons of NUDGE policys
- Too paternalistic
- Too unpredictable (based of biases)
- To costly
3 Pros of NUDGE policys
- Cost effective
- improves provision of information
- tackles the root of the problem by changing phycology not just forcing a change
3 evaluation points of behavioral economics
- Government failure
- Is information provision enough
- behavioral economics will not affect firms only consumers
Altruism
Performing tasks for non utility maximising reasons
3 reasons that prove consumers arnt utility maximisers
Cognitive biases
Endowment effect
Altruism
