Individual Economic Decision Making Flashcards
Rationality
The notion that economic agents make decisions that best promote their perception of what is in their own best interest and adjust their behaviour in the light of experience.
Marginal Utility
Additional satisfaction gained from consumption of one more unit of a good/service.
[Law of diminishing marginal utility is explained by demand curve, as consumption increases, additional unit provides less utility, consumer is willing to pay less for more]
Asymmetric Information
Where either the seller or buyer has more information than the other party in the transaction, preventing rational decision making.
Bounded Rationality
The ability to make rational decisions is restricted by an individuals inability to process/evaluate information.
Bounded Self-control
Where irrational decisions result from a lack of self control
Rule of thumb
Where decisions are based on experience & practice rather than scientific calculation or evidence.
Anchoring
Where individuals rely too much on an single piece of information when making a decision.
Availability
When judgements are heavily influenced by situations people can easily remember.
Social norms
Where behaviour is influenced by a group or society
Altruism
Non-rational behaviour occurs because of unselfish concern for the well being of others
