Behavioral Economics Flashcards
Propensity to do nothing.
Preference towards inertia and the status quo.
ACTION BIAS
Reliance on good or bad feelings experienced in relation to a stimulus.
AFFECT HEURISTIC
Form of PRIMING whereby the initial exposure to a number serves as a reference point to influence subsequent decisions.
ANCHORING
Practice of influencing choice by organizing the context in which people make decisions.
CHOICE ARCHITECTURE
Phenomenon occurs as a result of of too many choices being available.
Associated with unhappiness and DECISION FATIGUE.
CHOICE OVERLOAD
Systemic (non-random) error in thinking.
Judgment deviates from accepted formal logic.
COGNITIVE BIAS
Seeking out information that fits a preconception.
CONFIRMATION BIAS
Long sessions of decision making can lead to poor choices due to diminished executive function.
DECISION FATIGUE
Phenomenon occurs when a preference for one option over another changes as a result of adding a third similar, but less attractive, option.
DECOY EFFECT
In a market with perfectly rational agents, the price (market value) of an item reflects its true worth (intrinsic value).
EFFICIENT MARKET HYPOTHESIS
Tasks requiring persistent self control can weaken the ego, resulting in a diminished ability to self regulate behavior.
EGO DEPLETION
Bias in overvaluing what we own in spite of the objective market value.
ENDOWMENT EFFECT
Mistaken belief that independent events are interrelated.
Eg. roulette player betting on a pattern that has previously occurred)
GAMBLER’S FALLACY
Global evaluation of a person influences perception of the person’s unrelated attributes.
Eg. friendly person considered physically attractive.
HALO EFFECT
Getting used to changes in life experiences.
Eg. Happiness from a new salary will wane over time.
HEDONIC: Relating to pleasant/unpleasant sensations.
HEDONIC ADAPTATION
Doing what others do instead of exercising independent judgment.
Groupthink.
HERD BEHAVIOR
Cognitive shortcuts to simplify decisions under conditions of uncertainty.
Resolution though trial and error.
HEURISTIC
New information changes recollections to something different.
Leads to distorted judgment about the probability of future events.
HINDSIGHT BIAS
Choice not to obtain information that is freely available.
INFORMATION AVOIDANCE
The pain of losing is psychologically twice as powerful as the pleasure of gaining.
LOSS AVERSION BIAS
Distorted sense of consumption.
MINDLESS EATING
Tendency to overestimate the probability of positive events and underestimate the probability of negative events.
OPTIMISM BIAS
Person’s subject confidence in their ability exceeds their objective performance.
OVERCONFIDENCE EFFECT
Rate of consumption is decreased by dividing resources into smaller units.
Eg. Cookies wrapped individually.
PARTITIONING
Assumption that one’s preferences will remain the same over time.
PROJECTION BIAS
Present rewards are weighted more heavily than future ones.
TIME (TEMPORAL) DISCOUNTING
Traditional cost-benefit models cannot account for the psychological effect of getting something for free.
ZERO PRICE EFFECT
