Economic Decision Making Flashcards
What is Nudge vs Push theory?
A nudge is an implicit incentive designed to shift consumer behaviour by a small margin, whereas a push is an explicit restriction or reward which dramatically shifts consumer behaviour.
What is Availability Bias?
Availability Bias is the use of the most recent or readily available piece of information to make a decision, e.g. being more likely to buy the most recent car you looked at in a showroom.
What is Anchoring?
Anchoring is when a consumer fixates on one piece of information (usually a non price factor), influencing any decisions they make.
What is Heuristic Bias
Heuristic Bias is when consumers follow habits leading to a sub optimal outome, e.g. going to their usual supermarket instead of the cheapest one.
Explain the difference between bounded rationality and bounded self control
Bounded self control is where consumers know they willrecieve a sub optimal outcome but continue anyway, such as with an addictive substance. Bounded rationality is where consumers cannot reason sufficiently to avoid a sub optimal outcome, e.g. not being aware of the best food for their health.
Explain choice architecture and framing
Choice architecture is how options are presented by sellers to buyers. Framing is the use of nudges and other biases to guide consumers towards a particular choice, such as framing some items in a shop as a deal or bargain.
Explain the different types of choice
Default choice: Have to manually opt out
Mandated choice: Impossible to opt out
Restricted choice: few options
Explain Satisficing
Where consumers settle for a sub maximal utility
Explain how altruism can affect consumer behaviour
Consumers may forgo utility maximisation to asisst others or create external benefits
