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Description
Flashcards by Tara Pugal, updated more than 1 year ago
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Created by Tara Pugal
over 8 years ago
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| Question | Answer |
| Bounded Rationality | decisions made by humans cannot be entirely rational because of limits they face |
| Limits of bounded rationality (4) | information failure time limits limits of human brain impact of emotions |
| Bounded self-control | consumer over-consume even when it makes sense to stop |
| What cause biases in decision making? (4) | rules of thumb anchoring availability bias social norms |
| Rules of thumb (heuristics) | mental shortcut for decision making to help make a quick, satisfactory but maybe not perfect answer to a complex decision |
| Anchoring | the use of (often) irrelevant information as a reference point for helping to make an estimate of an unknown piece of information |
| Availability bias | happens when people judge the likelihood of an event or frequency of it's occurrence by the ease with which examples and instances come to mind |
| Social norms | accepted by the majority of a given group of people |
| Altruism | people behave with more kindness and fairness than would be the case if they behaved rationally |
| Choice architecture | when the environment in which someone must make a decision has been carefully designed in order to try and influence that decision |
| Framing | where consumers are persuaded to make a decision based of the consequences (whether positive or negative) |
| Nudges | alternatives to standard intervention that influence people's choices |
| Default choice | the option chosen in a consumer does nothing or does not make an active choice |
| Describe decision making system 1 | automatic, uses short-cuts to make quick decisions often based of common sense estimates and emotional reactions to choice |
| Describe decision making system 2 | more deliberate process using conscious thinking and reflection much slower and more easily manipulated |
| Herd behaviour | making decisions based on the behaviour of others due to social pressures |
| Partitioning | a technique where consumption can be reduced by packaging something into smaller amounts |
| Restricted choice | consumers find it difficult to make a decision when they have lots of options (because of bounded rationality) so restricting their choices may help consumers actually make a decision (more efficient) |
| Mandated choice | where people must make a decision in advance whether they want to participate in something - they are required by law to make this choice |
| Zero-price effect | where the D curve for a good changes dramatically once the P of a good is 0 |
| Confirmation bias | the tendency for people to only remember point that support their views |
| Curse of knowledge | the fact that more informed people have an understanding of how lesser-informed people might think |
| Endowment effect | where people often demand more to give up something that they would be willing to give in the first place |
| IKEA effect | when people over-price an object that they have either fully or partially assembled themselves, regardless of the outcome |
| Planning fallacy | the tendency to (significantly) underestimate how long it will take to complete a task |
| Zero-risk bias | the human preference of reducing an already small risk to 0 rather than reducing a high risk by a large amount |
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