Unit 1 AOS 3 Flashcards
What is behavioural economics
= seeks 2 incorporate psych into economics 2 enhance our understanding of c’er behaviour
Interested in how ppl actually act rather than theoretical model says they act
What are 3 insights into human decision making
1) Bounded Rationality
2) Bounded will power
3) Bounded self interest
What is bounded rationality
-> suggests ability 2 make decisions compromised by the time constraints; available information; complexity of the decision; the brains cognitive limitations
t/f decisions are x always rational / inc utility h/r they’re good enough
Factors 2 explain why rational decisions aren’t made
- Overconfidence bias = ppl take on 2 much debt and they regret it
- Vividness = c’er place 2 much weight on small number of vivid observations
- Status Quo bias = c’er stick 2 particular choice though decision may not max utility
- Anchoring effect = c’er judgements affected by arbitrary value
- Herd behaviour = c’er follow crowd, hoping crowd knows more than them
- Framing bias = way options are framed can affect choices, prompting irrational decisions
What is bounded will power
= c’er x have absolute self control over their choices
-> often give-in 2 urges b/c emotional + impulsive decision making
-> poor decisions b/c ‘present bias’
(present bias = ppl over/under value future)
What is bounded self interest
= c’er care re. fairness + x always driven by narrow self interest 2 maximise personal benefit
-> idea suggests c’er will reject any unfair proposals even if contrary 2 self interest
Focusses of a traditional consumer
- Ordered set of preferences
- Acts rationally
- Fully informed
-> aim 2 max utility
What are the focusses of modern consumers influenced by
= influenced by internal and external factors which -> less rational decisions being made overall
What is the point of difference between a traditional c’er and a modern c’er
= the degree of rationality of decisions made
What is marketing
= includes a range of strategies that bus use 2 attract c’ers
What are the 5p’s of marketing
= Product; price; people; place; promotion
What is Product (5ps)
= conducting research 2 discover what c’er want
What is Price (5ps)
= how much 2 charge 4 selling product
-> final price must be high enough 2 cover costs + make profit
-> must be competitive in market
What is People (5ps)
= employ staff who are knowledgeable re product they’re selling
-> website acts as similar substitute 2 staff member t/f must be easy 2 navigate
What is Place (5ps)
= where product is sold
-> c’er have greater preference 4 online products
