Behavioural Economic Theory Flashcards
define behavioural economics
analysis that applies psychological insights into human behaviour to explain how individual make choices
define bounded irrationality
when making decisions an individual’s rationality is limited by the information they have and the finite amount of time available
define bounded self-control
limited self control where individuals lack self-control to act in what they see as their self-interest.
define cognitive bias
a mistake in reasoning or in some other mental thought process occuring result to rule of thumb/preferences and beliefs
define rule of thumb
rash, practice method that can be easily applied when making decisions
define social norms
forms or patterns of behaviour considered acceptable by a group within society
define anchoring
cognitive bias describing human tendency to rely to first piece of info
define availability
occurs when individuals make judgement about the likelihood of future events according to how easy it is to recall examples of similar events
define altruism and philanthropy
charity
define framing
how something is presented influences choices people make e.g gym
define loss aversion
peoples tendency to prefer to avoid making losses to acquire potential gains e.g gambling
define nudge
try to alter peoples behaviour in a predictable way without forbidding any options/changing economic incentives e.g rubbish bins
define default choice
an option that is selected automatically unless an alternative is specified
define mandated choice
required by law to make a decision
define restricted choice
offering people limited number of options
