Behavioural Economics Pt3 Flashcards
what is behavioural economics?
They dispute rationality and utility maximisation arguing that emotional, social, and psychological factors can influence decision making. These factors are known as cognitive biases.
What are the cognitive bias factors that can prevent a rational choice or utility maxing choice?
Anchoring
Social Norms
Availability Bias
Framing
Loss Aversion
Herd Behaviour
Choice architecutre
Altruism
What is anchoring?
when a value is set in our mind as a reference point to compare prices.EG: £1000 holiday but another is £850. We think its a good deeal, but..
what is social norms?
where decisions are influenced by expectations or standards.EG: tipping a waiter
What is Availability Bias?
When we make decisions based on how easy it is to come up with scenarios.EG: shark attack idea in autrailia may prevent one from swimming there when in reality its unlikely to get attacked.
What is Framing?
When we are influenced by the way info is presented. EG: zero sugar
What is loss aversion?
when we dont like giving things up or risk losing it. EG: money and investingLeads to endownment effect - attaching to much monetary value to something you have compared to something you can gain.
What is herd behaviour?
When we make decisions because the people around us have made the same decision
What is Choice architecture?
when our decisions are influenced by the location or placement of something.
what is altruism?
refers to decisions made out of kindness/selflessness.
