BIASES - anchoring , norms, loss aversion , herding

Question 1

what id price anchoring

Answer 1

value is imporinted in our minds asa a refernence point to compare other prices to

Question 2

give example of price anchoring in rela life

Answer 2

shops having recoommended retailed prices on price labelling

creates ancoring in our minds

we compare actual price which is often lower to the recommenede retail priece

the fact the real price is lowe rhan RRP makes us think we get good deal which isnt necessarily the case

Question 3

what are social norms

Answer 3

when desicison are indleunced by rules society has dictated

Question 4

give example of social norm

Answer 4

tipping in a restaurant because we like he experince but not tipping if we go to diner party even if we like the eperienece equally - insead give box of chocolates

the way we judge those caught drink driving

Question 5

availaibilty bias

Answer 5

when we make desciosn based on how easy it is for use to ocnjure up examples even if those examples inflate the probaility of the real thing happening

Question 6

give example of availabity bias

Answer 6

smoking - may ahve olderly relatieve smoking entire life and is very healthy at the old age of 85

this comes to mind very easily when mkaing descison to smoke or not

which diregards the evidence and higher liekly probailty smkinking leads to premmie death and hwalth problems

Question 7

what is frmaing

Answer 7

idea we are infleunced by teh way information is rpesented to ys

Question 8

give example of frimang

Answer 8

e.g low fat low sugar adv means mroe liekly to consume it as we infleunced by the way info is presented

+ questions

Question 9

what is loss aversion

Answer 9

idea we dont liek to give things up and lose thingd we have value towads #

Question 10

give example of loss aversion

Answer 10

we have reall attahment to money

instead of investing it into something tht gives us more money and utilityy we dont wanna take the risk as e dont liek teh idea of loosing moeny

even if the chance of loising it is low and gain is higher

Question 11

what does loss aversion lead to

Answer 11

endownemnt effect

Question 12

what is endownement effect

Answer 12

attahcing to much monetary value to something you have , compared to something else you could gain

even if whatever you could gain is not risky and yand worth the same as what you have , youre less willing to engage

Question 13

what is herd behaviour

Answer 13

phenoment where individuals act collectivley as part of a group, often making D as a group that they wouldnt as an individual

Question 14

give example of her d behaviour

Answer 14

in a restaurant making an order based on waht friends are ordering

financial mkts , many popel invest in a certian stock or commodity another investor makes d to buy sticj cause everyone else is doing it - can lead to a bubble lead to a huge crash

Question 15

what is choice archietecture

Answer 15

environent individual is in has been carefully designed to try to infleunce theri descisons

Question 16

give example of choice architecture

Answer 16

locatin of salad bars in restaurant if at the front were more likely to consume salad

covid - placing hand sanistisers in more obvious locatinos make us more liekly to consume hand sansitiser

location of strairs at front , inr elation to escalators / lifts

Question 17

behavioural eocn can allows us to understand pther situations where traditional economics can get it

Answer 17

wrong

Question 18

what is alturism

Answer 18

idea of kindness and selflessness wehre consumers / individuals dont expect anything back in return for the activity

e.g charity

Question 19

why does tradidtional eocn thought find it hard somwone whould give up huge amoints of moeny for charity – how would they try to justofyt his

Answer 19

givign to charity increases utility for that individual which is why charitable activity occurs

Question 20

what does behaviorual econ say about giving to charity

Answer 20

consumers not utility maxing robot all time

got moral and feelings and emotions which mayinfleunce DM

so charity giving is a result of morals

Question 21

when firms are making employent desciison traditinal economic thorugh says

Answer 21

firsm only employ workers if ther is a need for workers - and can bring in revenue and help achieve profit

as firms are profit maximisers

thye wouldnt just do it for fun

Question 22

how would behavioural econ explain a firm employing peple when ther is not a need for them

Answer 22

firms may have other consideratinos e.g csr obj ior

dont want peole to live on streets

concerned about lvl of unemp in society and wann ado their bit ot reduce unemp rate