Decision Making Flashcards
Overconfidence bias
Consumers overestimate their ability to make good decisions and don’t acknowledge the limits of their future decision making
Vividness
Consumers place too much weight on a small number of clear and distinct observations
Status quo bias
consumers stick to a choice even though it is no longer in their self interest
- gym membership, subscriptions
Anchoring effect
Consumer judgement are affected by some arbitrary starting value or anchor
-buying house -> less fussy about price of extras even though expensive bc cheap by comparison
Herd behaviour
When outcomes are highly unpredictable, consumers often follow the crowd or “general consensus” of decisions as it feels safer
Framing bias
how options, choices or information is presented or framed to influence decision making
- 80% success vs 20% failure rate
Marginal utility
The satisfaction consumers gain from consuming an additional unit of a good or service
Diminishing marginal utility
Each additional unit of a good or service consumed has a smaller utility or is less satisfying than the last
Total utility
Total satisfaction consumers gain from consuming a goods and services
Three key assumptions of behavioural economics
Bounded rationality
Bounded willpower
Bounded self interest
Three assumptions of traditional economics
Rational decision making
ordered set of preferences
Fully informed decision making
