Behavioural Economics Flashcards

1
Q

What is rational behaviour?

A

acting in pursuit of self interest which for a consumer means attempting to maximise the welfare, satisfaction, or utility gained from the goods and services consumed

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2
Q

What is utility?

A

satisfaction or economic welfare an individual gains from consuming a good or service

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3
Q

What is marginal utility?

A

The (addition to the total) additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good

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4
Q

When is utility maximised?

A

when marginal is 0

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5
Q

What is the laws of diminishing returns?

A

A short term law which states that as a variable factor of production (labour) is added to a fixed factor of production (premises), eventually both the marginal and average returns to the variable factor will begin to fall

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6
Q

What is behavioural economics?

A

a method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions

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7
Q

What is bounded rationality?

A

when making decisions and individuals rationality is limited by the information they have, the limitations of their minds, and the finite amount of time available in which to make decisions

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8
Q

What is satisficing?

A

achieving a satisfactory outcome rather than the best possible outcome

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9
Q

What is bounded self contol?

A

limited self control in which individuals lack the self control to act in what they see as their self interest

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10
Q

What does cognitive bias consist of?

A
  • rule of thumb
  • anchoring
  • availability
  • social norms
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11
Q

What is altruism?

A

being charitable

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12
Q

What is choice architecture?

A

a framework setting out different ways in which choices can be presented to consumers and the impact of that presentation on consumer decision making

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13
Q

What is framing?

A

how something is presented influences the choices people make

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14
Q

What is loss aversion?

A

peoples tendency to prefer to avoid making losses to acquire potential gains

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15
Q

What are nudges?

A

tries to alter peoples behaviour in a predictable way without forbidding any options or significantly changing economic incentives

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16
Q

What is a default choice?

A

an option that is selected automatically unless an alternative is specified

17
Q

What is production?

A

the output (number of goods)

18
Q

What is productivity?

A

output per unit of time

19
Q

What are the factors affecting labour productivity?

A
  • motivation
  • technology
  • infrastructure
  • training
  • specialization
20
Q

What is division of labour?

A

breaking the production process down to a sequence of tasks, with workers assigned to a particular task

21
Q

What are the benefits of division of labour?

A
  • workers become specialised in their task
  • increases productivity
  • wage costs lower/ average costs
  • allows for use of specialist machinery
  • economies of scale
22
Q

What is specialisation?

A

a worker only performing one task or a narrow range

23
Q

Why do we have money?

A
  • medium of exchange
  • store of wealth
  • unit of account
  • standard of deferred payment