Behavioural Economics Flashcards
Bounded rationality
When people try to behave rationally but are restricted by three main factors
Human mind has a limited ability to process and evaluate information
The availability of information is incomplete,unreliable or outdated
The time available to make a decision is limited
Bounded self control
When individuals lack the self discipline to see their rational good intentions through
Rules of thumb
Thinking shortcuts or informed guesses that individuals use to make decisions in order to save time and effort
Anchoring
The tendency of individuals to rely on particular pieces of information when making choices between different goods and services
Availability bias
When people make judgements about the probability of events by recalling recent instances
Social norms
When individuals are influenced by others when making decisions
Altruism and fairness
Individuals are motivated to do the right thing, even if this means paying more for the good or service
Choice architecture
Influencing consumer choices by the way the choices are presented
E.g. Opting out of donation, more people are likely to donate as they don’t want to opt out however before they may not have wanted to sign up
Framing
Influencing consumer choices by the way in which words and numbers are used
Nudges
Influencing consumer behaviour via the use of gentle suggestions and positive reinforcement
Default choice
Influencing consumer behaviour by setting socially desirable choices as default options
Mandated choice
Where people are legally required to make a choice
E.g. In some countries people are legally required to make a choice on organ donation when applying for a driving license
