Behavoral Economics Flashcards
Name five common economic biases
Overconfidence, self control issues, framing effects, sunk costs and altruism
Name an example of self control issues in the market
If people can postpone payment they might indulge in an unsustainable manner
What is the endowment effect
That people value things they have more than things of equal market value they don’t have. Things gain value through posession
What is anchoring bias
When we take unnecessary information into account
What is mental accounting
When we create a budget for a certain area and don’t transfer money between them
How is the endowment effect and anchoring used un marketing
50% off an arbitrary price = anchoring and try for free usually results in people keeping whatever they have now
What are laboratory experiments
Subjects know they are being tested and they are in a controlled environment
What are natural experiments
When things that can be observed randomly happen in nature or society
What are field experiments
Researchers implement a policy to a group and control group outside the lab and compare the results
