Economics - Consumer behaviour

• What does Behavioral Economics dispute regarding traditional economic theories?


  It disputes rationality and utility maximization.
• What factors does Behavioral Economics argue can influence decision making?

  Emotional, social, and psychological factors.
• What are the steps traditional economics suggests consumers take when making decisions?


  Gather all information, weigh up all information, and take time to make a utility maximizing decision.
• What is bounded rationality in Behavioral Economics?


  • Limited time
  • Limited choice
  • Limited information
• What does bounded self-control refer to in Behavioral Economics?


  It refers to the inability of consumers to control themselves.
• How do consumers make decisions according to Behavioral Economics?


  Consumers follow heuristics to make satisfying decisions.
• What are some methods consumers can use to make decisions according to Behavioral Economics?


  • Use heuristics
  • Apply simple decision-making strategies
  • Consider 23 simple ways of making a decision
• What is the focus of traditional economics regarding consumers?


  It focuses on rational consumers.
• How does Behavioral Economics differ from traditional economics in terms of decision-making processes?


  Behavioral Economics emphasizes emotional and psychological influences, while traditional economics emphasizes rationality and utility maximization.
• What does traditional economics assume about decision making?

  It assumes rational decision making based on marginal changes.
• How can businesses and governments use insights from behavioral economics?

  They can use these insights to change outcomes.
• What does behavioral economics demonstrate about rational choices?


  It shows that not everyone makes rational choices based on self-interest.
• How can others influence our decisions?


  We may be influenced by what others think or do.
• What biases might affect our decision making?

  We may over-value possessions, be reluctant to accept losses, and be influenced by framing effects.
• How can our objectives be affected by others?

  We may want things that are good for us to also be good for others.
• What does it mean for decisions to be inconsistent over time?

  It means our choices may vary at different times.
• How can emotional reactions affect rational decision making?

  They can lead us to make choices that are not rational.
• What does bounded rationality imply?

  It implies we may not always act in our self-interest.
• What is total utility?

  Total utility is the total satisfaction from consuming a good or service.
• What is marginal utility?

  Marginal utility is the extra satisfaction from consuming one more unit.
• What is the Law of Diminishing Marginal Utility?

  • As consumption increases, additional satisfaction declines.
  • Consumers are willing to pay less for each additional unit.
  • This creates a negative relationship between quantity consumed and marginal utility.
• Why is the demand curve downward sloping?

  Because of the negative relationship between quantity consumed and marginal utility.
• What is choice architecture?

  It refers to how the presentation of options affects decisions.
• What are nudges in behavioral economics?

  Nudges are small changes that influence decisions while preserving freedom of choice.
• What are the different framing effects in decision making?

  • Presenting information differently can change decisions.
  • People avoid losses more than they seek equivalent gains.
  • Providing multiple options can reduce decision dissatisfaction.
  • Reducing options can promote greater utility.
  • Mandated choice can reduce inaction.
• What tools can governments use to influence behavior?

  • Default options
  • Simplification
  • Salience
  • Social norms
• What is price anchoring in cognitive biases?


  It is the value imprinted into our mind as a reference point to compare prices for.
• How do social norms influence our decisions?


  They dictate the rules society has established that we follow.
• What is availability bias?


  It is when we make decisions based on how easy it is for us to think of examples.
• How does framing affect our decision-making?


  It influences us based on the way information is presented to us.
• What is loss aversion, also known as the endowment effect?


  It is the tendency to dislike losing things that we have a value for.
• What is herd behavior in decision-making?


  It is when we make a decision because others around us have made the same decision.
• What does choice architecture refer to?


  It refers to how our decisions are influenced based on the location or placement of something.
• What is the definition of altruism?


  It is the idea of selflessness.
• What do consumers or individuals expect in altruistic behavior?


  They don’t expect anything back in return.
• What is the concept of framing in behavioral economics?


  Framing is the way information is presented to us.
• How do nudges influence consumer behavior?


  Nudges influence behavior through product placement or location.
• What is a default choice in choice architecture?


  A default choice is an option that is automatically selected unless opted out of.
• What does restricted choice mean in the context of choice architecture?


  Restricted choice refers to limiting the number of options available to consumers.
• What is mandated choice in choice architecture policies?


  Mandated choice requires individuals to make a decision one way or another.