Micro 2.3

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What does behavioural economic theory recognise?
The social, moral and psychological factors that determine the behaviour of economic agents.
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How does behavioural economic theory differ from traditional economic theory?
It questions the assumption of individuals as rational decision makers.
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What is bounded rationality?
The idea that people may try to behave rationally, but their ability to do so is severely restricted.
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What is bounded self control?
When individuals have good intentions but lack the self-discipline to see them through.
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What are rules of thumb/heuristics?
'Thinking shortcuts’ individuals use to make decisions in order to save time and effort, given the problems of bounded rationality.
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How do rules of thumb affect the choices consumers make?
Consumers may choose the same good from a business because they have enjoyed it on previous visits. This saves the consumer the time and effort of having to make comparisons on every visit.
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What is anchoring?
The tendency of individuals to rely on particular pieces of information when making choices between different goods and services, especially in situations where they lack knowledge or experience.
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What is the availability bias?
When people make judgements about the probability of events by recalling recent instances.
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What do social norms recognise?
The influence on others upon individual decision making.
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What do the biases of altruism and fairness mean?
People are motivated to do the right thing, even if this means paying more for a good/service.
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What do critics of altruism and fairness argue?
People fear being judged, especially in a world where information flows freely.
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Other cards in this set

Card 2

Front

How does behavioural economic theory differ from traditional economic theory?

Back

It questions the assumption of individuals as rational decision makers.

Card 3

Front

What is bounded rationality?

Back

Preview of the front of card 3

Card 4

Front

What is bounded self control?

Back

Preview of the front of card 4

Card 5

Front

What are rules of thumb/heuristics?

Back

Preview of the front of card 5
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