Rational behaviour
Acting in pursuit of self interest which for a consumer means attempting to maximise welfare satisfaction or utility gained from goods or services consumed
Utility
The satisfaction or economic welfare an individual gains from consuming a good or service
Marginal utility
the additional welfare, satisfaction or pleasure gained from consuming one extra unit of a good
When is utility maximised
When the marginal utility is 0
Law of diminishing marginal utility
Marginal utility at first rises but then falls with consumption
Constraints of utility maximisation
Limited income Given set of prices Budget constraints Limited time (Info?)
Asymmetric information
When one party to a market transaction possesses less information relevant to the exchange than the other
Behavioural economics
A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices
Bounded rationality
When making decisions an individuals rationality is limited by the information they have, their minds and the time available
Bounded self control
Limited self control in which individuals lack the self control to act in what they see as their best interests
Cognitive bias
Mistake in reasoning or thought process occurring as a result of using a rule of thumb or holding onto a belief or preference despite evidence
Availability bias
Individuals make judgments about the likelihood of events occurring based on how easily they can remember a similar event
Anchoring
Tendency to rely too heavily on the first piece of evidence offered
Economic sanctions
Restrictions imposed by regulations or laws that restrict an individuals freedom to behave in certain ways
Nudges
Factors that encourage people to think and act in certain ways, they try and shift peoples behaviour to comply with desired patterns
Choice architecture
A framework setting out different ways in which choices can be presented to consumers and the impact that presentation on the consumers decisions
