A2 Economics Behavioural Economics

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UTILITY

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The satisfaction or economic welfare an individual gains from consuming a goodor service.

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RATIONAL BEHAVIOUR

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Acting in the pursuit of self-interest by attempting to maximise the welfare, satisfaction or utility gained from goods & services.

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MARGINAL UTILITY

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The additional welfare, satisfaction, or pleasure, gained from consuming one more unit of a good.

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ASYMMETRIC INFORMATION

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When one party to a market transaction possesses less information relevant to the exchange than the other.

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BEHAVIOURAL ECONOMICS

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A method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices & decisions.

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BOUNDED RATIONALTY

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Whe making decisions, and individual's rationality is limited by the amount of information they have, the limitations of their mids, & the finite amount of time available to make the decision

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BOUNDED SELF-CONTROL

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Behavioural economic theory assumes that when making choices, individuals have bounded self-control, that is restrivted by certain factors.

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AVAILABILITY BIAS

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When individuals make judgements about the likelihood of future events according to how easy it is to remember examples of similar events

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STATUS-QUO BIAS

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Individuals tend to favour things to remain the same than change.

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OBSERVATIONAL SELECTION BIAS

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Theeffect of suddenly noticing things not noticed before & wrongly assumingthe frequency of observation has increased.

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IN GROUP BIAS

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Valuingthe opinions of your immediate group of friends over other's opionions.

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POSITIVE EXPECTATION BIAS

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Thesense that luck will change for the better.

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NEGATIVITY BIAS

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Individualsare more likelytopayattention to bad news than good.

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BAND WAGON EFFECT

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The effect when people sercombe to ‘herd behaviour’.

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POST-PURCHASE RATIONALISATION

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Whereindividuals justify the purchase of goods irrespective of if it is faulty, tooexpensive, etc.

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NEGLECTING PROBABILITY BIAS

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Individualsoverstate the risks of relatively harmless activities.

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MEMORY BIAS

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Individualsare more likely to accurately remember things associated with significantemotions.

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CURRENT MOMENT BIAS

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Preferringpleasure now to pleasure in the future.

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ANCHORING

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Acognitive bias describing the human tendency to rely too heavily in the firstpiece of information offered (the anchor), & to use this information whenmaking subsequent judgements.

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SOCIAL NORM BIAS

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Social norms are the forms or patterns ofbehaviour considered acceptable by a society or group within that society e.g.queuing politely;­Negativesocial norms e.g. drinking alcohol to be sociable.­Positivesocial norms e.g. it is now less socially acceptable to discriminate againstothers. t.com

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FAIRNESS

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Treatingpeople equally or in a way that is reasonable or right. This involves a valuejudgement – is normative.

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ALTRUISM

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Isconcern or welfare for others, even though we may suffer as a consequence infinancial loss, or by incurring personal risk.

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CHOICE ARCHITECTURE

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A frameworksetting out different ways in which choices could be presented to consumers, & the impact of that presentation on choice.

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DEFAULT CHOICE

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Anoption that is selected automatically unless an alternative is specified e.g.automatic pension enrolment.

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FRAMING

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Thetendency for people to be influenced by the context in which the choice ispresented when making a decision.

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RESTRICTED CHOICE

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Offeringpeople a limited number of options so that they are not overwhelmed by thecomplexity of the situation, thereby making poorly-thought-out decisions or nodecisions at all.

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MANDATED CHOICE

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People are required by law to make a decision and not just go along with thedefault position.

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NUDGES

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Tryto alter people’s behaviour in a predictable way without forbidding any optionsor significantly changing economic incentives, & without making it a legalrequirement.

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SHOVES

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Policiesthat instruct people to behave in certain ways, often by responding tofinancial incentives & disincentives that reward or punish differentdecisions.