Behavioural Economics!

What is Rational Economic Decision-Making (or Rational Consumer Choice)?

• rationality is overrated :)

• the assumption that people act in their own self-interest to maximize the satisfaction of purchase

• managing your economic finances and reducing the opportunity cost

• "I think therefore I am"

What are THREE assumptions of rational consumer choice?

Consumers....

• rank the goods according to their preferences

• have inconsistent preferences among alternatives

• have "perfect information" about the goods & their alternatives

• prefer an alternative that has more of the good

• are NOT driven by the invisible hand

Marginal utility and diminishing marginal utility are key to understanding the theory of ______ behaviour

Utility maximization was first developed by Jeremy Bentham & John Stewart Mill, it describes:

• how consumers must have the perfect information to purchase goods

• how to use products to the max

• how to calculate consumer rationality

• how consumers purchase goods that will provide them with the most satisfaction

What is a cognitive bias?

• a perspective or preference

• another word for stereotype

• systematic errors in thinking or evaluating

• emotional decisions

Relying heavily on an irrelevant piece of information to help us make a decision, is...?

• Anchoring effect

• Availability heuristic

• Hindsight bias

• IKEA effect

The term "bounded rationality" means

• Humans are always irrational decision makers

• We can choose between making irrational and rational decisions

• Humans are unable to exercise self-control

• Our decision-making capability is limited by our inability to process large amounts of data

Which of the following policies would be most likely to be considered a nudge?

• The tax authorities making tax avoidance legal

• The tax authorities making tax avoidance illegal

• The tax authorities sending a letter to people to tell them their deadline is approaching, which if they miss they will be fined

• The tax authorities sending a letter to people who tax avoid telling them they are being fined

This is NOT one of the types of choices in choice architecture

• Default Choice

• Dictated Choice

• Restricted Choice

• Mandated Choice

The goal of profit maximizing is to make the difference between ____ and cost as large as possible