Unit 1 Behavioral Economics

Behavioral Economics

A method of economic analysis that applies psychological insights into human behavior to explain economic decision-making.

Cognitive Bias

A systematic pattern of deviation from norm or rationality in judgment, leading to illogical inferences or conclusions.

Loss Aversion

The tendency to prefer avoiding losses to acquiring equivalent gains, meaning the pain of losing is psychologically twice as powerful as the pleasure of gaining.

Present Bias

The tendency to settle for a smaller immediate reward rather than wait for a larger future reward, overvaluing the present moment.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms or supports one's preexisting beliefs or values.

Sunk Cost Fallacy

The phenomenon where a person continues a behavior or endeavor as a result of previously invested resources (time, money, or effort).

Anchor Bias (Anchoring)

A cognitive bias where an individual relies too heavily on an initial piece of information (the 'anchor') when making decisions.

Framing Effect

A cognitive bias where people decide on options based on whether the options are presented with positive or negative connotations (e.g., as a loss or as a gain).

FOMO (Fear Of Missing Out)

An anxiety or apprehension that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on social media.

Herd Mentality

The tendency for individuals to align their behavior and choices with the majority, ignoring their own independent analysis or preferences.

Status Quo Bias

A preference for the current state of affairs, leading people to resist change even when better alternatives exist.

Choice Overload

A cognitive impairment in which making a decision becomes difficult due to the overwhelming number of options available.

Impulse Buying

The buying of goods without planning in advance, usually executed on the spur of the moment in response to emotional triggers or environmental cues.

Dark Patterns

User interfaces meticulously designed to trick or manipulate users into doing things they might not otherwise do, such as buying products or signing up for services.

Scarcity Mindset

A psychological state where a person focuses heavily on what they lack (e.g., money or time), reducing mental bandwidth and impacting long-term decision-making.

Social Proof

A psychological and social phenomenon where people copy the actions of others in an attempt to undertake behavior in a given situation.