definitions

Question 1

altruism meaning

Answer 1

neoclassical assumption of individual ‘maximising’ behaviour. For example, it would be not be financially rational for someone to do voluntary work. However, this can be explained if one places a value on the positive emotion of having done something good.

Question 2

anchoring meaning

Answer 2

tendency to be over-reliant on a single number or piece of information in individual decision-making.

Question 3

Availability bias meaning

Answer 3

people make judgements about the probability of events occurring by recall of their own experiences or memory.

Question 4

Behavioural Economics meaning

Answer 4

A set of theories of individual economic behaviour that challenges standard neo-classical assumptions of rational decision-making.

Question 5

Choice architecture meaning

Answer 5

How choices can be influenced by the way in which the options are presented to an individual.

Question 6

Bounded self-control meaning

Answer 6

even when humans believe they know what is the most rational course of action, they are unable to see that through, due to human failings.

Question 7

Choice overload meaning

Answer 7

Also referred to as overchoice. Where too many choices are available to consumers. This is a form of imperfect information which may lead to decision fatigue, going with the default choice or not buying a product at all.

Question 8

Confirmation bias meaning

Answer 8

When people seek out or process information in a way that fits with their existing views and preconceptions.

Question 9

default choice meaning

Answer 9

pre-set course of action that takes effect if nothing is specified by the decision maker, which can be an effective tool in choice architecture. For example, requiring people to opt out of organ donation has been shown to lead to higher donation rates.

Question 10

framing meaning

Answer 10

The tendency for individuals to be influenced by the context in which a choice is presented.

Question 11

herding behaviour meaning

Answer 11

When people do what others are doing instead of relying on their own information in decision-making.

Question 12

heuristics meaning

Answer 12

Where individuals make decisions based on approximate ‘rules of thumb’ rather than strict logic (common sense)

Question 13

loss aversion meaning

Answer 13

A concept linked to prospect theory which argues that individuals place more emphasis on avoiding losses than making gains

Question 14

nudge meaning

Answer 14

altering people’s behaviour in a predictable manner, without removing freedom of choice.

Question 15

ownership bias

Answer 15

Also known as the endowment effect. A form of bias that leads to individuals over-valuing things that they own, regardless of market value.

Question 16

rational choice meaning

Answer 16

Based on the assumptions made by neoclassical economists that rational individuals make decisions based upon careful weighing up of costs and benefits in order to maximise utility or satisfaction.

Question 17

restricted choice meaning

Answer 17

A form of choice architecture based on giving individuals a limited number of choices in order to avoid the problem of ‘over-information’

Question 18

bounded rationality meaning

Answer 18

This is based on the view that humans are unable to quickly and accurately process complex information, and that information may itself be incomplete and unreliable.