The Allais Paradox illustrates how human decisions often deviate from expected utility theory, sparking alternative models in behavioral economics and decision theory.
Anchoring is a cognitive bias that describes the common human tendency to rely heavily on the first piece of information (the “anchor”) encountered when making decisions.
Anomalies are economic choices that cannot be explained by standard choice theory based on the axioms of preference. The identification of anomalies has led to the development of behavioural economics and the rejection of expected utility theory.
An in-depth look at the phenomenon of choice overload, where having too many options can lead to decision paralysis and decreased satisfaction.
Cognitive Bias refers to systematic patterns of deviation from norm or rationality in judgment where individuals create their subjective reality from their perception of the input.
Compulsive Buying is an irresistible urge to buy items, often not related to necessity. This behavior is characterized by an overwhelming desire to purchase and own items, leading to significant financial and emotional consequences.
A comprehensive examination of consumer rationality, its axioms, historical context, key events, and implications in various fields such as economics, finance, and psychology.
Dynamic inconsistency is a situation where a decision-maker's optimal plan at one point in time is no longer optimal at a later time. It is crucial in economics, game theory, and behavioral economics, affecting policies and individual decisions alike.
Expectations refer to the forecasts or views of economic agents about future values of economic variables. They play a crucial role in economic analysis by influencing the choices and behavior of economic agents, which in turn shape the trajectory of the economy.
An exploration of habit persistence in economics, examining how past consumption affects present utility and implications for consumer behavior.
Herding Behavior in finance describes the tendency of investors to follow and mimic the actions of a larger group, often ignoring their own individual analysis and decision-making processes. This behavior can significantly impact financial markets, leading to price fluctuations and contributing to market bubbles and crashes.
An in-depth exploration of how households make collective decisions on consumption and labour supply, including cooperative and non-cooperative models, key factors, and implications.
An assumption on the rate of time preference that reflects a bias towards present rewards. Hyperbolic discounting contrasts with exponential discounting where the discount rate between any two periods is constant.
An in-depth exploration of hysteresis in economics, its implications, applications, and underlying principles.
Exploring the phenomenon of impulse buyers, who make spontaneous, unplanned purchases often driven by immediate perception or emotion.
Incentives are rewards or penalties designed to influence economic agents' behaviors to achieve specific results. They include pay variations, working conditions adjustments, promotion prospects, and reputation impacts, influencing actual results or managerial perceptions.
The extent to which a person's behavior is affected by the information they are required to communicate. For example, company directors producing an annual report may emphasize favorable aspects of financial statements, possibly adopting creative accounting.
An exploration of interdependent utility, where individual well-being is influenced by the well-being of others, encompassing both positive and negative externalities.
Loss aversion describes the tendency for people to prefer avoiding losses rather than acquiring equivalent gains. This concept highlights the significant impact of potential losses on human decision-making.
The Marginal Propensity to Consume (MPC) measures the increase in consumer spending due to an increase in disposable income. Essential for economic analysis and policy formulation.
Exploring the Cognitive Bias Where Individuals Overestimate the Likelihood of Positive Events and Underestimate the Potential for Negative Events.
An in-depth examination of pre-commitment, a strategic decision-making process that influences behavior by committing to a course of action in advance.
An exploration of Rank Dependent Expected Utility Theory, its historical context, mathematical framework, applications, and relevance in addressing anomalies in traditional expected utility theory.
The Ratchet Effect refers to the tendency for a variable to be influenced by its own highest previous value, creating a one-way upward stickiness.
A comprehensive exploration of the concept of Rational Ignorance, which involves choosing not to acquire information when the cost exceeds the expected benefits.
An exploration of the theory that savings behavior is influenced by a person's relative income position within their community or region.
Revealed Preference is an economic concept that uses consumers' choices to infer their preferences among different bundles of goods. This entry explores the historical context, types, key events, explanations, mathematical models, charts, importance, examples, and related terms.
The Sunk Cost Fallacy is the phenomenon whereby decision-makers continue investing in a project due to the amount already invested, despite new evidence suggesting that the cost will not be recovered.
An in-depth exploration of tastes in the context of consumer behavior, highlighting the importance, types, historical context, and implications of different preferences.
An in-depth exploration of the concept of time preference, its historical context, key events, mathematical models, significance, and applications.
In-depth understanding of Variable-Ratio Schedule; reinforcement occurs based on an average number of responses leading to unpredictable behavior patterns, often illustrated through examples like gambling.
An in-depth exploration of the Wealth Effect and its influence on expenditure and economic behavior. Learn about its historical context, key events, models, and examples.
An in-depth exploration of expectations, their impact on consumer, investor, business, and government decisions, and their role in financial and economic analyses.
Money Illusion refers to the cognitive bias where individuals mistakenly believe that an increase in their nominal income equates to an increase in their real purchasing power, neglecting the effect of inflation.
An in-depth analysis of the Endowment Effect, an emotional bias where people value owned objects more highly than their market value. Learn about the causes, implications, and examples of this phenomenon.
The halo effect is a cognitive bias whereby a consumer's positive perception of a maker's products influences their perceptions of other products by the same maker. This entry explores the overview, history, examples, and implications of the halo effect in consumer behavior.
The House Money Effect is a behavioral finance phenomenon where investors take on higher risks when trading with profits from previous transactions. Learn the meaning, see examples, and find answers to common questions.
A comprehensive guide to intertemporal choice, exploring its significance in decision-making for both businesses and individuals, and how it influences future financial opportunities.
Explore the economic theory of money illusion, which posits that people tend to assess their wealth and income in nominal terms without accounting for inflation. Delve into its historical background, relevant examples, and implications.
An in-depth explanation of outcome bias, including its definition, how it works, its implications in decision-making, and ways to mitigate it.
An in-depth exploration of Prospect Theory, including its fundamental principles, how it contrasts with expected utility theory, and practical examples to illustrate its application in decision-making under risk and uncertainty.
An in-depth exploration of Regret Theory, its psychological underpinnings, real-world applications, historical context, and comparisons with related decision-making theories.
A comprehensive exploration of the wealth effect, its definition, examples, and its impact on consumer behavior in behavioral economics.
