Individual economic decision making Flashcards

1
Q

key assumptions in economic theory

A

economic agents are utility maximisers and are rational

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2
Q

how does information have an effect on rationality

A

economic theory assumes that everyone has perfect information

in real life everyone has imperfect information causing market failure

asymmetric information also effects it

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3
Q

Asymmetric information

A

when one party has more information than the other in a transaction

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4
Q

bounded rationality

A

people make decisions to make a satisfactory decision than spending ages making a rational decision which maximises utility

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5
Q

rule of thumb

A

choosing the middle priced option when faced with a range of different prices for products

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6
Q

anchoring

A

when too much emphasis based on one piece of information

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7
Q

availability bias

A

when judgements are made about the probability of events occurring based how easy it is to remember

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8
Q

social norms

A

an individuals behaviour is influenced by the behaviour of a social group

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9
Q

habitual behaviour

A

doing the same thing over and over again

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10
Q

choice architecture

A

where an individuals choice is influenced by adapting the way its presented

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11
Q

default option

A

when people are more likely to choose the default option

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12
Q

framing

A

the context in which a decision is presented for example changing the wording of an option make it more desirable

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13
Q

nudges

A

where alternatives are easier to choose without removing freedom of choice for example smoking in certain areas can encourage people to stop smoking

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14
Q

restricted choice

A

this occurs when peoples choices are restricted for example limiting number of schools

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15
Q

mandated decision

A

where people have to make a decision for example the government where people have to choose if you want to be an organ donor or not

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16
Q
A