Behavioral Economics and Decision-Making Concepts

The video explores how behavioral economics explains consumer decisions influenced by cognitive biases, such as price anchoring, social norms, availability bias, framing, loss aversion, herd behavior, and choice architecture. It contrasts these with traditional economic views, highlighting altruism and non-profit-driven employment decisions. The video concludes with a preview of applying these concepts to policy making.

What do behavioral economists argue can influence decision-making, preventing rationality and utility maximization?

• Government policies

• Technological advancements

• Cognitive biases

• Economic factors

What is price anchoring?

• Setting a high price to attract customers

• Setting a low price to drive competition

• Offering discounts to increase sales

• Using a reference price to compare other prices

Why do people tip in restaurants but not at a friend's dinner party?

• Tipping in restaurants is a social norm

• Restaurants are more expensive

• Friends do not expect tips

• Restaurants have better food

What is an example of availability bias?

• Choosing a product based on its price

• Making decisions based on easily recalled examples

• Following the crowd in making decisions

• Avoiding risks due to fear of loss

How does framing influence decision-making?

• By following social norms

• By comparing prices to a reference point

• By recalling easily available examples

• By presenting information in a certain way

What is loss aversion?

• The tendency to prefer gains over losses

• The tendency to follow the crowd

• The reluctance to give up something of value

• The preference for high-risk investments

What is the endowment effect?

• Overvaluing what you already own

• Undervaluing new opportunities

• Preferring high-risk investments

• Following social norms

What is herd behavior?

• Making decisions based on personal preferences

• Following the decisions of others

• Avoiding risks due to fear of loss

• Making decisions based on easily recalled examples

How can choice architecture influence decisions?

• By setting high prices

• By presenting choices in a certain way

• By following social norms

• By recalling easily available examples

Why might firms employ people even if there is no immediate need?

• To reduce unemployment

• To follow government policies

• To increase profits

• To compete with other firms