4. Individual Economic Decision Making - Behavioural Economics & Biases Flashcards Preview

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Flashcards in 4. Individual Economic Decision Making - Behavioural Economics & Biases Deck (11)
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1
Q

What do behavioural economics call social, emotional and psychological factors that influence decision?

A

Cognitive Biases

2
Q

What are the 7 different types of cognitive bias?

A
  1. Anchoring2. Social Norms3. Availability bias4. Framing5. Loss aversion6. Herd Behaviour7. Choice Architecture
3
Q

What is anchoring?

A

This is when a price/piece of information is imprinted in to the consumers mind and used to influence decisions - e.g. stores set RRPs as anchors we see the actual price is lower so buy the products

4
Q

What are social norms?

A

When behaviour is influenced by rules society has created - e.g. tipping in restaurants bc it’s the ‘right’ thing to do

5
Q

What is availability bias?

A

This is when ppls decisions are swayed by the easiest information they have to hand about a certain topic rather than what the whole picture is - e.g. if you have a healthy elderly relative who smokes you may think smoking isn’t that bad for your health bc this info is easily available to you in spite of the overwhelming evidence overall

6
Q

What is framing?

A

This is when information is presented in a certain way In order to entice consumers to buy certain goods - e.g. low fat heavily advertised on a product and presented in a certain way

7
Q

What is loss aversion?

A

The idea that ppl are more reluctant to risk a loss than they are to try and make a gain - ppl are more fearful of losing something they already have than losing out on something they could potentially get

8
Q

What may loss aversion lead to?

A

Endowment Effect - this is where you attach a overly high monetary value to things you already have rather than things you cld get - reduce your willingness to engage in transactions and risk your current possessions etc.

9
Q

What is herd behaviour?

A

This is effectively jumping on the band wagon, when ppl make a decision based on the fact that everyone else is making that same decision - e.g. ordering the same meal as your friends at a restaurant

10
Q

What is choice architecture?

A

This is when decisions are influenced by the location and presentation of structures/information - e.g. ppl are less likely to take the stairs if the elevator is right round the front of the building in full view

11
Q

What is altruism & how is it explained by behavioural economics?

A

This is the idea that ppl behave in a kind or selfless manner and don’t expect anything in return - according to traditional economics this wld virtually never occur if ppl were utility maximisers and firms profit maximisers but it does - behavioural economics can explain that emotional factors etc. influence decisions and cause ppl to behave in a way that isn’t necessarily utility maximising - e.g. giving to charity

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