The Allais Paradox illustrates how human decisions often deviate from expected utility theory, sparking alternative models in behavioral economics and decision theory.
Exploring the Concept of Ambiguity in Decision-Making, Its Models, Implications, and Related Terms in Economics and Beyond
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.
The Bandwagon Effect explains the phenomenon where the demand for a good or the popularity of an idea increases as more people adopt it, driven by the desire to conform with the masses.
Bounded Rationality describes the practical decision-making processes individuals and organizations use when perfect information is unavailable, emphasizing satisfactory outcomes over optimal ones. It addresses the limitations of human cognition in economic models.
Bounded rationality explains the constraints of human information processing and decision-making. It challenges the model of the all-knowing, optimal decision-maker in economics, emphasizing limited alternatives and satisficing behaviors.
An in-depth exploration of disincentives, their historical context, types, key events, importance, applicability, examples, considerations, related terms, comparisons, interesting facts, and more.
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.
An economic incentive is a benefit offered to encourage specific economic behaviors or activities.
Economic Man refers to an idealized individual who makes rational decisions to maximize personal benefit under constraints. This concept is pivotal in economic theories and models.
Exploration of Endogenous Preferences, how they form, their impact on behavior, and their significance in economic and social frameworks.
Comprehensive exploration of extrapolative expectations, a concept where future economic variables are predicted based on past and current data trends.
An in-depth look into the Framing Effect, exploring how the presentation of choices can influence decision-making behaviors. Includes examples, types, historical context, and related terms.
An in-depth exploration of hysteresis in economics, its implications, applications, and underlying principles.
Detailed exploration of incentives, their types, key events, importance, and applicability across various fields.
An exploration of interdependent utility, where individual well-being is influenced by the well-being of others, encompassing both positive and negative externalities.
An in-depth exploration of the concept of Money Illusion, where individuals misinterpret nominal changes in wages and prices as real gains, without accounting for inflation.
Overestimation refers to the cognitive bias where an individual or group assesses their abilities, knowledge, or influence as greater than they actually are.
An observation that the level of voter turnout is inconsistent with rational decision-making on whether or not to vote. This paradox highlights the discrepancy between the low expected benefit of voting and the high cost, yet turnout remains high due to factors like social customs and duties.
Post-decisional dissonance refers to the psychological discomfort experienced after making a difficult decision, often leading to individuals seeking justification or reinforcement for their choice.
A comprehensive exploration of Prospect Theory, which explains how people decide between probabilistic alternatives involving risk, where the probabilities of outcomes are uncertain.
An in-depth look at qualitative choice models (also known as discrete choice models), their historical context, categories, key events, detailed explanations, mathematical formulations, applications, and more.
An exploration of the concept of rational expectations, its historical context, significance in economic models, and practical applications.
Understanding the role of reference points in decision-making processes through the lens of prospect theory.
Regret Theory is a framework in decision-making where individuals anticipate the regret they might feel if a wrong choice is made and incorporate this anticipation into their decision processes. This theory offers an alternative to the expected utility hypothesis and helps explain various economic anomalies.
An individual is risk-loving if they prefer a risky prospect with an expected pay-off of M to a certain pay-off of M. This behavior is influenced by an increasing marginal utility of wealth, reflected by a strictly convex utility function.
Understanding strategic behaviour involves making decisions with awareness of the interdependence of choices among different agents and anticipating the influence of one's actions on others. This article explores the concept in detail.
An in-depth exploration of the concept of time preference, its historical context, key events, mathematical models, significance, and applications.
A detailed examination of contrarian investing, its principles, strategies, and how it contrasts with mainstream investment approaches.
Expected Daily Utility represents the anticipated satisfaction or benefit derived by an individual from goods and services consumed within a day, integral to decision-making in economics.
Odd-value pricing involves setting retail prices just below even dollar amounts, like $5.99, $0.39, and $98.99, based on the unproven psychological assumption that consumers perceive lower prices.
The Wealth Effect describes an increase in consumer spending that occurs as a result of an increase in perceived or actual wealth, often associated with rising asset prices such as real estate or stocks.
A comprehensive exploration of the anchoring and adjustment heuristic, its definition, applications in business and finance, and its psychological underpinnings.
Comprehensive analysis of 'Animal Spirits,' a term coined by John Maynard Keynes to describe the impact of human emotions on financial decision-making.
An in-depth exploration of Behavioral Economics, examining its theories, goals, and practical applications in understanding economic decision-making.
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.
A comprehensive exploration of Homo Economicus, the figurative human being characterized by the infinite ability to make rational decisions, including its definition, meaning, historical context, and relevance in economic theory.
An in-depth exploration of the Hot Hand Phenomenon, including its definition, underlying mechanisms, empirical evidence, and implications across various domains.
A comprehensive overview of mental accounting, including its definition, the cognitive biases involved, and practical examples for better financial decision-making.
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.
Comprehensive exploration of Rational Choice Theory in economics, detailing its principles, applications, and examples.
A comprehensive overview of Rational Expectations Theory, exploring its definition, underlying mechanisms, historical context, and applications in economics and finance.
An in-depth exploration of Regret Theory, its psychological underpinnings, real-world applications, historical context, and comparisons with related decision-making theories.
An in-depth analysis of the Revealed Preference theory, illustrating how consumer behavior indicates preferences given constant income and item prices. Explore its background, types, examples, and applications in economics.
An in-depth exploration of the prisoner's dilemma, a fundamental concept in game theory where individuals acting in their own self-interest fail to achieve the best possible outcome for the group.
A comprehensive exploration of the wealth effect, its definition, examples, and its impact on consumer behavior in behavioral economics.
