Neoclassical vs. Behavioral Economics Flashcards
What are the differences between humans and Econs?
Econs are rational, have stable preferences, perfect information, good at math, unbounded self-control, selfish and self-centered
Humans are the opposite
What does it mean for Econs to be rational?
Their choices maximize utility by weighing all benefits and costs, errors are quickly fixed.
What does it mean for Econs to have stable preferences?
They can rank their assumptions (completeness), interpret their rankings (transitivity), and prefer more of a good than less (non-saturation).
What does it mean for Econs to be selfish or self-centered?
They will only accept/purchase something if it benefits them.
What is irrational behavior?
Making systematic error in decisions that are repeated and reduce welfare.
What are heuristics?
Rule of thumb/shortcuts the save energy, but errors can be made.
What causes cognitive biases?
Faulty heuretics, emotions, social pressure, and mental capacity.
What is the anchoring effect?
Basing your choices on irrelevant initial information.
What is the framing effect?
When a change in context causes different behavior in an identical situation; phrasing something based on a loss or impact even if they add up to the same.
What is the availability heuristic?
Estimating the likelihood/importance of something based on how easily we can think of an example.
What is the endowment effect?
Holding onto an object one owns rather than the same object that they don’t own.
What is loss aversion?
Losing the same amount is more disappointing than the pleasure from gaining it.
What is the status quo bias?
The tendency to select any option that is/presented as default.
