Overview
Behavioral economics combines insights from psychology and economics to understand how people make decisions, especially under uncertainty. It challenges the traditional view of rational decision-making by highlighting the role of cognitive biases, emotions, and social influences. Key concepts inclu...
Key Terms
Example: People prefer a sure gain of $50 over a 50% chance to win $100.
Example: Losing $20 feels worse than gaining $20 feels good.
Example: Using the rule of thumb to estimate the time needed for a task.
Example: A surgery described as having a 90% success rate is viewed more favorably than one with a 10% failure rate.
Example: Confirmation bias leads people to favor information that confirms their existing beliefs.
Example: If the first price seen for a car is $30,000, subsequent prices will be judged against that anchor.