Behavioral Economics & Consumer Skills Flashcards
Behavioral Economics
The sub-field of economics that applies psychological insights into human behavior and to explain economic decision making
Cognitive Bias
A subconscious error in thinking that leads to irrational decision making
Confirmation Bias
The tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence
Endowment Effect
The tendency to put more value on things you already own
FOMO (fear of missing out)
The tendency to feel anxiety/fear that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on a social media website
Hedonic Adaptation
The tendency to return to a baseline level of happiness regardless of whether you go through a positive or negative experience or event
Herd Mentality
The tendency to conform to the behaviors and beliefs of the people around you
Loss Aversion
The tendency to regard losses as considerably more important than gains of comparable magnitude
Overconfidence Bias
The tendency people have to be more confident in their own abilities
Overestimation
When a person believes they are better at something than they actually are
Overnight Test
A strategy used to combat loss aversion by imagining that overnight something you own has been replaced with cash, then determining whether you would prefer to keep the cash or buy the item back
Overplacement
When a person mistakenly believes they are better than others
Overprecision
When a person has an exaggerated certainty that an answer is correct
Sunk Costs
Costs that have already been incurred and cannot be recovered
Sunk Cost Fallacy
The tendency to make decisions about a current situation based on what resources you have already invested in the situation
