Behavioral Economics Vocab

Overconfidence Bias

The tendency people have to be more confident in their own abilities

Cognitive Bias

A subconscious error in thinking that leads to irrational decision making

Confirmation Bias

The tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence

Endowment Effect

The tendency to put more value on things you already own

FOMO (Fear of Missing Out)

The tendency to feel anxiety/fear that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on a social media website

Hedonic Adaptation

The tendency to return to a baseline level of happiness regardless of whether you go through a positive or negative experience or event

Herd Mentality

The tendency to conform to the behaviors and beliefs of the people around you

Loss Aversion

The tendency to regard losses as considerably more important than gains of comparable magnitude

Behavioral Economics

The subfield of economics that applies psychological insights into human behavior and to explain economic decision making

Overestimation

When a person believes they are better at something than they actually are

Overnight Test

A strategy used to combat loss aversion by imagining that overnight something you own has been replaced with cash, then determining whether you would prefer to keep the cash or buy the item back

Overplacement

When a person mistakenly believes they are better than others

Overprecision

When a person has an exaggerated certainty that an answer is correct

Social Media Marketing

The use of social media platforms and websites to promote a product or service

Sunk Costs

Costs that have already been incurred and cannot be recovered

Sunk Cost Fallacy

The tendency to make decisions about a current situation based on what resources you have already invested in the situation