Behavioral economics. Flashcards
What is bounded rationality?
Where the ability to act rationally is restricted by-the human mind, info available or time available.
What is bounded self control?
When individuals have good intentions but the self control. E.g. not revising or going to the gym.
What are rules of thumb?
Sometimes known as heuristics, they are shortcuts individuals use to make decisions. E.g. a customer may have the same drink every time they go to a coffee shop because they liked it on the previous visit.
What is anchoring?
The tendency for individuals to rely on particular pieces of information when making decisions.
What is availability bias?
It’s when people make judgments about the probability of events by recalling recent instances.
What are social norms?
The influence of others when making decisions.
What is altruism?
People are motivated to “do the right thing”. E.g. people will buy Fairtrade goods even though they may be more expensive.
What is choice architecture?
This refers to how choices may be influenced by the way they are presented to the decision maker. E.g. opt in vs opt out.
What is framing?
A form of choice architecture that influences choices by the way numbers and words are used. E.g “Less than £3 a day” Instead of “£1000 a year”
What are nudges?
A form of choice architecture that influences consumer behaviour through gentle suggestions such as “5-a-day” encouraged a greater consumption of fruit and veg.
What is defualt choice?
A form of choice architecture where the socially desirable outcome is the default option.
What is mandated choice?
A stronger form of choice architecture where people are required by law to make a choice.
What is restricted choice?
Restricted choice is another way if influencing peoples choices, if people are given too much choice then they can sometimes not make an effective choice.
