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
What are social norms
Patterns or behaviours deemend acceptable and normal by society
What is alturism
Concern for others welfare
What is loss aversion
Where the benefit of gaining something is less than the negative impact of losing something
example of cog bias
only follwoing and choosing news sources taht support views
agrreeing with famous people more
examples of anchorign
big sale signs
egenrally when sellign prices are higher then cut for discoutn
lisitng most expensiev shit firts
exmaples of loss aversio
inesvtign in lwo risk low return investments
focsuign on shit you lsoe mroe tahn yoru accomplishmenets
selling invetsmenets that are dubs rather tahn rh loss makers
selling stocks when they are makiing short term losses and nto lookign logn term
ecsmples of social norms
givign to charity as its deemmed the right shit to do
everyoen buyign a roudn fo drinsk at a pub
orderign less fodo than you wnat bc 2 meals seems to much
examples of rules of thumb
save atleast 10 - 15% of incoem for retriment
pay off high inetrest cards frist
a balanced protfolio is 60 stocks and 40 bonds
stock market average reurn is 10%
gernally abotu savigns and retriemnet and shit
exampels of avalibiltuy bias
seeing old peopel smoke and thinkign its halthy
overesiamtign probability of an event happenign afrter it occuring
