Module 7 - Behavioural Economics Flashcards
When we evaluate whether or not we like something, we tend to implicitly ask ourselves, “Compared to what?” (Reference what) and then classify gains and losses.
Reference Dependence
People take greater risks when they are faced with a given probability of bad luck than the same probability of being cheated by another person.
Betrayal Aversion
A concept that challenges the notion of human rationality: there are limits to our thinking capacity, available information, and time.
Bounded Rationality
Human resistance to “unfair” outcomes - occurs when people prefer fairness and resist inequalities.
Inequity aversion
This term refers to the fact that human beings often take actions that they know to be in conflict with their own long-term interests
Bounded Willpower
These signal appropriate behaviour and are classed as behavioural expectations or rules within a group of people.
Social Norms
A term that reflects when decisions are often simply good enough in light of the costs and constraints involved.
Satisficing
The theory that considers economic actions to be the result of both monetary incentives and people’s self-concepts.
Identity Economics
The term used to describe the concept that people have a tendency to prefer avoiding losses to acquiring equivalent gains
Loss Aversion
The mental discomfort experienced by a person who simultaneously holds two or more contradictory beliefs, ideas, or values - triggered by a situation in which a belief of a person clashes with new evidence.
Cognitive Dissonance
The system of thinking that refers to conscious reasoning.
Deliberative System
The system of thinking that is automatic, intuitive, and relatively unconscious
Automatic System
Underestimating how long it will take to compete a task and ignoring the past experience
Planning fallacy
Continuing a behaviour or endeavor as a result of previously invested resoures (time, $, effort)
Sunk Cost Fallacy
Information that stands out, is novel, or seems relevant is more likely to affect our thinking and actions
Salience
When people’s subjective confidence in their own ability is greater than their actual performance
Overconfidence effect
Commonly defined as cognitive shortcuts or rule of thumb we apply using our automatic thinking processes
Heuristics
When we overvalue a good that we own, regardless of its objective market value
Endowment effect
the systematic (nonrandom) errors in thinking we may be left with when we make decisions
Cognitive biases
The tendency to automatically interpret information in ways that support prior beliefs and gives rise to a biased information search.
Confirmation Biases
Describes how choices can be worded in a way that highlights the positive or negative aspects of the same decision, leading to changes in their relative attrativeness.
Framing
A form of priming effect whereby initial exposure to a stimuli serves as a reference point, influencing subsequent judgements about value.
Anchoring Biases
A technique whereby exposure to one stimulus influences a response to a subsequent stimulus, without conscious guidance or intention.
Priming
An overweighting of the present relative to the future that results in inconsistencies in choices over time.
Present Biases
