Behavioural Economics Key Terms AQA

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Rules of thumb
Simple, useful tools that help an individual make a decision e.g. choosing the middle-priced option when faced with a range of different prices for similar products.
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Anchoring
This means placing too much emphasis on one piece of information, e.g. the first price quotedfor a job can influence an individual's view of what's a fair price.
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Availability Bias
This is where judgements are made about the probability of events occuring based on how easy it is to remember such events occuring, e.g. following a drought, people will overestimate the probability of a drought occuring next year, and make decision
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Social Norms
An individuals behaviour can be influenced by the behaviour of their social group e.g. an individual may stop buying cigarettes if none of their friends smoke.
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Habitual Behaviour
Doing the same thing over and over again, e.g. an individuals often choose to shop at the same place regardless of any ration reason for going elsewhere.
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Choice Architecture
Where an indivual's choice is influenced by adapting the way the choice is presented. This can be done by default options, framing, nudges, restricted choice and mandated choices.
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Default Options
People are more likely to choose the 'default' option, so this can be used to encourage individuals to act in a certain way- e.g. employees might automatically be rolled into a pension scheme.
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Framing
The context in which information is presented can influence a decision, for example £1 a day sounds more appealing than £7 a week.
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Nudges
This is where some alternatives are made eeasier to choose than others wwithout removing the freedom of choice, e.g. by only allowing smokingg in certain areas, a government can 'nudge' people into quitting.
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Restriced Choice
This occurs when people's choices are restricted, e.g. people are restricted to being only alowed to choose from schools in their areas.
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Mandated Choice
This is where people have to make a decision, e.g. a government may implement a policy where people have to choosse whether or not they're willing to be organ donors.
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Bounded Rationality
The idea that in decision-making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision.
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Thinking fast (Daniel Kaheman)
Instinctive thinking, making quick decisionss witth little effort e.g. getting a coffee on a train.
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Thinking slow (Daniel Kaheman)
Reflective thinking, requiring concentration and mental effort, can lead to overthinking e.g. buying a car typically requires thinking slow.
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Altruism and Fairness
Individuals may not just act out of self-interest e.g. they may give money to charity because they gain utility from it or a firm may pay their employees above minimum wage because they thhink its fair.
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Bounded Self-Control
Its assumed that a 'homo economicus' has total self control, however this suggests that individuals have limits on their self control e.g a comsumer may have limited ability to stop smoking although the act of smoking doesnt maximise their utility.
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Shoves
A harsh version of a nudge, e.g. banning certain activities and passing laws.
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Loss Aversion
The choices that people make are found to be different if these choices are framed as a gain or a loss.
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Other cards in this set

Card 2

Front

This means placing too much emphasis on one piece of information, e.g. the first price quotedfor a job can influence an individual's view of what's a fair price.

Back

Anchoring

Card 3

Front

This is where judgements are made about the probability of events occuring based on how easy it is to remember such events occuring, e.g. following a drought, people will overestimate the probability of a drought occuring next year, and make decision

Back

Preview of the back of card 3

Card 4

Front

An individuals behaviour can be influenced by the behaviour of their social group e.g. an individual may stop buying cigarettes if none of their friends smoke.

Back

Preview of the back of card 4

Card 5

Front

Doing the same thing over and over again, e.g. an individuals often choose to shop at the same place regardless of any ration reason for going elsewhere.

Back

Preview of the back of card 5
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