Behavioural economics Flashcards
What is behavioural economics
Using insight from psychology to explain why humans make irrational decisions
What is neoclassical economics
Relates supply and demand to an individuals ability to maximise profits or utility
Information failure
When an information gap arises due to buyers and/or sellers not having complete information
Altruism
Concern for the well-being and happiness or other humans over oneself
Bounded rationality
Economic actors have limited information, limited time to process the information and don’t spend enough time making an optimal decision
Bounded self control
Economic actors make decisions based on emotions such as greed and pleasure rather than taking the rational view that is in their best interest. e.g. overconsumption of food
Nudges
Form of choice architecture that aim at changing the actions of consumers without taking their freedom of choice away.
Anchoring
Relying on first piece of information we are given. This causes bias towards subsequent data
Availability
When previous experiences influence decision making, causing emotional responses
Choice architecture
How choices are framed to consumers
Heuristics
Convenient way of solving problems with imperfect information and limited time to make a decision.
Asymmetric information
When either the buyer or seller has more information than the other so can exploit the information gap to their advantage
Examples of how consumers use heuristics
Common sense or intuition to make a decision
Social norms
