Micro T2 - Behavioural Economics Flashcards
What is behavioural economics
Methods of economic analysis that applies phsycology into himan behavoiur to explain how individuals make choices
What is the difference about the idea of descion making in traditonal economics vs behavioural
Traditional -
Agents aim to maxiumise utility and are rational
Behavioural -
Emotional , social and physocological factors influence descision making
What is the difference about the idea of information in traditonal economics vs behavioural
Traditional -
Agents have all information
Behavioural -
Agents do not have all info
What is the difference about the idea of knowledge traditonal economics vs behavioural
Traditional -
All parties have perfect knowledge when making choices
Behavioural -
Parties have limited info which isnt readily available to them
What are 3 constraints have when making choices
Limited information
Limited mental possessing ability
Limited time
What is bounded rationality
The idea descision making cannot be fully rational because of a number of limits we face
What is bounded self control
Consumers have limited will power etc
Talk about bias in descision making
When people make a choice they are very bised
What is cognitive bias
Where individuals sway from rational choices and are influenced by non ecominc factors - emotion and invested opinion,
What is a rule of thumb
A piece of inofrmation that gives guidance and what are the simplified rules in a situation
What is availability bias
Where individuals believe the outcome of something, based upon recent events
What is an example of availability bias
People buying a lottery ticket after seeing someone they know win
What is anchoring
The use of irrelevant information as a refernece point
What is an anchor point
An idea that has no relevance to a descion but still affects peoples judgement
Give an example of anchoring
Where credit card systems automatically suggest a 30% tip, making consumers think a say 20% tip is low, when it isnt
