Behavioural (micro) Flashcards
what is traditional thinking in behavioral economics?
- consumers act rationally
- they aim to maximise their utility
- choose from full range of choices
- perfect market information
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what is bounded self control?
individuals which have limits on self control (e.g smoker with smoking addiction)
what is bounded rationality?
restrictions on people’s ability to make rational descisions.
these include:
* time constraint
* lack of information
* computation weakness (able to process and evaluate large amounts of data
ends with consumers satisficing
what is satisficing
satisificng is making a satisfactory decision rather than spending ages to maximise utility
what are rules of thumb
simple and helpful tools that help indiviudals make a descision (e.g taking the middle priced good)
what is anchoring
placing too much emphasis (reliance) on one piece of information, usually the first. (e.g the first price quoted for a job)
what is availability bias
judgments made about the probability of events based on how easy it is to remember that event occurring. (e.g after a drought, people will overestimate the probability of another drought occurring in the next year)
what are social norms/ herd behavior
an individual’s behavior is influenced by the behavior of a whole social group. (someone may start smoking if all their friends do)
what is habitual behavior / status quo
doing the same thing over and over again (e.g people going to buy at the same place over and over again)
how can fairness affect decision-making?
traditionally, a person will give money to charity to have the utility from doing it. however, individuals don’t always operate in self-interest, and could be doing it to be fair and altruistic.
what is choice architecture
where an indivduals choice in influenced by adapting the way the choice is presented
what are default options
people are more likely to choose the default option, so can be encouraged to act a certain way by changing the default option
what is framing
the context to which information is presented can influence a decision, like charge per month compared to charge per day
what are nudges
this is where alternatives are made easier to choose than others without removing the freedom of choice (allowing smoking in only certain areas, making it more of an effort to smoke and so encouraging people to quit)
what is restricted choice
when people’s choices are restricted (like limited schools in an area)
