2. Individual Economic Decision Making

• Rational Behaviour - people try to make decisions to maximise their private benifit
• utility is the satisfaction an individual gains from consuming a good or service
• Marginal utility is the additional satisfaction an individual gains from consuming an extra unit of something
• diminishing marginal utility is the marginal utility lost from each additional unit consumed
• utility maximisation is the assumption of maximising behaviour by economic agents
• margin is a concept used to describe the current level of production or consumption of a good or service
• asymmetric information is when one party of a market has more information than another
• behavioural economics is a method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices and decisions
• bounded rationality is when an individual is making a decision limited by the information and resources available
• bounded self control is when individuals lack the self control to act within their self interests
• cognitive bias is a systematic error in thinking that affects the decision making process
• availability bias occurs when individuals make judgements of future events based on how easy it is to recall previous examples of that event
• anchoring is a cognitive bias where human decisions are impaired based on the reliance of relying too heavily on the first piece of information given to them
• social norms are patterns of behaviour considered ”normal” by society
• nudges are factors which encourage people to act in certain ways
• altruism is a concern for the welfare of others
• fairness is the quality of being impartial
• choice architecture is a framework setting out how choices are presented to consumers
• default choice is an option selected automatically