Behavioural Economics Flashcards
What is rational behaviour?
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
What is utility?
satisfaction or economic welfare an individual gains from consuming a good or service
What is marginal utility?
The (addition to the total) additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good
When is utility maximised?
when marginal is 0
What is the law of diminishing returns?
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
What is behavioural economics?
a method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions
What is bounded rationality?
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
What is satisficing?
achieving a satisfactory outcome rather than the best possible outcome
What is bounded self contol?
limited self control in which individuals lack the self control to act in what they see as their self interest
What does cognitive bias consist of?
- rule of thumb
- anchoring
- availability
- social norms
What is altruism?
being charitable
What is choice architecture?
a framework setting out different ways in which choices can be presented to consumers and the impact of that presentation on consumer decision making
What is framing?
how something is presented influences the choices people make
What is loss aversion?
peoples tendency to prefer to avoid making losses to acquire potential gains
What are nudges?
tries to alter peoples behaviour in a predictable way without forbidding any options or significantly changing economic incentives
