Behavioural Economics Flashcards
Behavioural economics
looks at how psychology affects human choices and decisions and contrasts with traditional economic theory
traditional economics
we act rationally when making decisions
Bounded (limited) rationality
the idea that people’s ability to make rational decisions is severely restricted
Bounded (limited) self-control
lack the self-control to act in a manner that they claim is in their own best interest. Governments therefore take some decisions away from them and make it the law
Biases in decision making
people adopting mental shortcuts, or rules of thumb, which allow them to solve problems quickly
Anchoring bias
a predictable bias in individual decision making. It is the tendency to rely too much on other piece of information, frequently the first piece of information, when making decisions.
Availability bias
Where individuals make judgements about the likelihood of future events based on how easy they can remember a similar event
Social norm bias
a belief that is held by the group or groups of people with whom we associate about how we should behave in a given situation
Altruism
making decisions not for your own benefit but just for the benefit of others
Choice architecture
choices can be influenced by the way in which the various options are made available to the decision-maker.
Nudge
a means subtly changing people’s behaviour to be of greater social benefit, BUT without removing their freedom of change
Framing
is the tendency for people to be influenced by the way in which something is expressed when making a decision
