Behavioural Economics Flashcards
(15 cards)
What are key assumptions in economic theory?
Economic agents are utility maximisers and are rational
Why do behavioural economists challenge it?
The assumptions are not realistic
What do we assume people do?
Maximise utility
How do people maximise utility?
Comparing costs and benefits of alternatives and choose option that maximises utility
Why is this not realistic?
Economic agents have imperfect information
What is asymmetric information?
situation where one party in a transaction has more or better information than the other
Why do consumers not act rationally?
Limited Time
Not all information available
Hard to use all the data available
What biases stop rational thinking?
Rules of thumb
Anchoring
Availability bias
Social Norms
Habitual Behaviour
What are Rules of thumb?
tools that help to make a decision
What is anchoring?
Placing too much emphasis on one piece of information
What is availability bias?
Judgements ate influenced by what happens
What are social norms?
Behaviour influenced by others
What is habitual behaviour?
Doing the same thing over and over for no logical reason
How does fairness affect decision making?
Individuals and firms don’t always act in their own self-interest
How do governments use behavioural economics?
Mandated choices
Restricted choices
Framing
Default options
