Behavioural Economics Flashcards
Behavioural Economics
A field of economics that studies the psychological, social, cognitive, and emotional factors that influence individual decision-making.
Traditional Economics:
A school of thought that assumes individuals are rational actors who make decisions to maximize their self-interest.
Nudge:
A subtle intervention that influences behaviour in a predictable way without forbidding any options or significantly changing their economic incentives.
Multi-branding
A strategy where one company owns multiple brands, often producing similar products under different names.
Bounded Rationality:
The idea that individuals’ decision-making processes are limited by available information, cognitive limitations, and time constraints.
Cognitive Bias:
Being biased towards certain information because of cognitive presets. Individuals create their own “subjective reality” from their perception of the input.
Heuristics:
Mental shortcuts or rules of thumb that people use to make decisions quickly and efficiently.
Framing Effect:
The way information is presented can influence decision-making, even if the underlying information is the same.
Loss Aversion:
The tendency to prefer avoiding losses to acquiring equivalent gains.
Present Bias: (Hyperbolic discounting)
The tendency to overvalue immediate rewards and undervalue future rewards, dispite the value of each.
Bounded Willpower:
The idea that individuals have limited self-control and may struggle to resist immediate gratification.
3 examples of Government Strategies to Influence Behaviour
Default options, having them apart of it by default and requiring an opt out
Framing information, showing information that benefits them and in a light that makes what they like look good and what they dont, not.
Nudges, small things to infleunce behvaiour without being obvious
Incentive
A positive inducement, such as a reward or benefit, offered to encourage a particular behaviour.
Disincentive
A negative inducement, such as a penalty or cost, used to discourage a particular behaviour.
Endowment effect
placing a higher value on the things you own compared to identical items that you don’t.
Satisficing
Settling for an option that is just “good enough”
Sunk cost fallacy
Continuing an endeavor due to previously invested resources (time, money, effort) rather than current benefits.
Availability Heuristic:
A mental shortcut where people estimate the likelihood of an event based on how easily examples come to mind.
Representativeness Heuristic:
A mental shortcut where people judge the probability of an event by how similar it is to a prototype or stereotype.
Anchoring Heuristic:
A cognitive bias where individuals rely too heavily on the first piece of information offered (the “anchor”) when making decisions.
Status Quo Bias:
A preference for the current state of affairs and a resistance to change, even when there might be benefits to doing so.
Decoy Bias:
A cognitive bias where the presence of a less attractive “decoy” option influences the choice between two other options.
Social Proof Heuristic:
Assuming that a behavior is correct or appropriate if many other people are doing it.
