AOS3 Behavioural Economics

Bounded rationality

decision making is limited by available information, cognitive capacity, and time

Bounded willpower

lack of willpower or determintation to make a decision

what happens when someone lacks bounded willpower

take the easy less rational option, not best long term interest and will later regret

Bounded self interest

willing to choose less optimal outcomes for themselves if it means they can support others

difference between traditional and behavioural economics

information processing and assumptions about consumers

information processing for traditional

full and perfect information processed logically

information processing for behavioural

imperfect information process with cognitive limitations

assumptions about people for traditional

rational, self-interested agents

assumptions about people for behavioural

bounded rationality, influenced by biases, emotions and social factors

excise tax

an indirect tax on selected goods such as alcohol, and alters resource allocation and governemnt revenue

Nudges in marketing

gently steering consumer behaviour without removing choice using 5ps

5ps

product pricer people place promotion

promotion reviews =

is herd behaviour

by now pay later

is present bias

bounded selfinterest

choose less optimal outcomes if it means they can support others

status quo

make decisions on bia because you lack time to research

herd behaviour

follow trends and peers, dont want to stand out

framing bias

make decisions based on how information is presented

anchoring effect

jumping at discounts despite orignal price and actual value

overconfidence bias

irrational choices, overestimating their accuracy in decision making

vividness bias

small peice of info stands out rather than consider other options

present bias

immediate reward and gratification instead of thinking about long-term effects

loss aversion bias

making choices to avoid losses instead of making gains

narrative fallacy

importance on story rather than fact

the nudge

gently steers consumers to wanted outcome, still their free choice