Subject specific vocabulary

What is rational economic decision making?

Using all the available information to select the best option to maximise the welfare of the decision maker. A rational consumer choose to buy the goods and services, that given their limited income will maximise their total utility

What is utility?

The satisfaction that is derived from consuming a good or service

What is marginal utility?

The change in total utility that results from the consumption of one more, or one fewer, goods or services

What is the hypothesis of diminishing marginal utility?

The proposition that as more of a good is consumed, the additional satisfaction gained from each extra unit declines

What is imperfect information?

When an economic agent does not have all the information needed to make a rational decision, or the information is distorted in some way

What is asymmetric information?

A type of imperfect information where one party to an economic transaction has more information that the other party

What is behavioural economics?

A branch of economics that include elements of psychology to improve our understanding of how people’s decision making is influenced by biases and emotional factors

What is bounded rationality?

The idea that human limitations mean that people’s decision making is not completely rational. Bounded rationality means that when an individual makes a decision, they choose an option that is satisfactory rather than optimal

What is bounded self-control?

The idea that people do not have sufficient willpower or self-discipline to resist choices that may be tempting but are not in their self-interest

What are the rule of thumb?

Mental shortcuts, based on experience, that enable individuals to make decisions more quickly and easily.

What is anchoring?

The idea that when making decisions, people rely too heavily on one particular piece of information, the anchor. The anchor is often the first piece of information they encounter

What is availability bias?

When people’s decision making is unduly influenced by recent events or how easily an event comes to mind

What are social norms?

Behaviours that are consistent with what is generally considered acceptable by society at the present time

What is choice architecture?

The way or framework in which choices are presented to peopl

What is a nudge?

Something that encourages a particular decision or behaviour without removing freedom of choice

What is default choice?

An option that has been pre-selected for an individual but the individual is able to select a different option if they want to

What is restricted choice?

Where the number of choices made available to an individual is limited. This type of choice architecture is often adopted when there is a large number of choices available which makes it hard for individuals to decide which is the best option

What is mandated choice?

A form of choice where the individual must make a choice. Mandated choices are usually required by law