behavioural economics

Question 1

behavioural economics

Answer 1

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

Question 2

what does be challenge?

Answer 2

assumptions of rationality and utility maximisation

Question 3

asymmetric info

Answer 3

one party to a transaction has more information than another

Question 4

imperfect info

Answer 4

when consumers misunderstand the true C and B of consumption

Question 5

perfect info

Answer 5

all consumers and producers have complete knowledge

Question 6

anchoring

Answer 6

a cognitive bias describing the human tendency to rely too heavily on the first piece of information offered

Question 7

availability bias

Answer 7

when individuals make judgements about the likelihood of future events according to how easy it is to recall examples of similar events

Question 8

bounded rationality

Answer 8

when making decisions individuals are limited by information they have, limitations of their mind and time available

Question 9

choice architecture

Answer 9

framework setting out different ways in which choices can be presented to consumers

Question 10

cognitive bias

Answer 10

mistake in reasoning as a result of rules of thumb

Question 11

bounded self control

Answer 11

individuals have a limited capacity to regulate their behaviour and make decisions in the face of conflicting desires or impulses

Question 12

rule of thumb

Answer 12

when individuals make decisions based on their default choice based on experience

Question 13

framing

Answer 13

how the presentation or wording of information can significantly influence peoples choices or judgements

Question 14

availability bias

Answer 14

relying on information that comes to mind easily when making judgements or decisions, influenced by personal experiences

Question 15

utility

Answer 15

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

Question 16

marginal utility

Answer 16

additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good

Question 17

diminishing utility

Answer 17

law of diminishing marginal returns is where an additional unit will result in a smaller increase in utility

Question 18

diminishing marginal utility

Answer 18

the marginal utility derived from a good or service diminishes for each additional unit consumed

Question 19

cognitive bias

Answer 19

a mistake of reasoning

Question 20

altruism

Answer 20

motivated to do ‘the right thing’

Question 21

nudge v shove

Answer 21

nudge encourages, shove enforces

Question 22

nudge pros

Answer 22

people like choice, cheaper, less unintended consequences, doesnt punish all consumers

Question 23

nudge cons

Answer 23

change takes longer, revenue generation, inelasticity, targets more influenceable people

Question 24

status quo bias

Answer 24

people prefer things to remain the same

Question 25

memory bias

Answer 25

people remember specific emotions or events more than others

Question 26

in group bias

Answer 26

tighter bonds with people similar to ourselves

Question 27

positive expectation bias

Answer 27

belief that luck will eventually change for the better, eg. gambling

Question 28

neglecting probability bias

Answer 28

inability to grasp a proper sense of the risk involved with certain events

Question 29

negativity bias

Answer 29

people tend to pay more attention to bad news than good news

Question 30

bandwagon effect

Answer 30

herd mentality or group thinking

Question 31

current moment bias

Answer 31

preferring pleasure in the short run to pleasure in the long run

Question 32

default choice

Answer 32

influencing behaviour by setting socially desirable choices as the default choice

Question 33

mandated choice

Answer 33

where people are legally obliged to make a choice

Question 34

restrictive choice

Answer 34

giving people a limited number of choices