Behavioural Economics Archives

Behavioural Economics

Game Theory Definition

Game Theory Definition

Game theory is the study of strategic decision making between individuals. Although termed ‘game theory’, it refers to any interaction between multiple people where each person’s pay off is affected by the decision made by others.

Framing Effect Definition

Framing Effect Definition

The framing effect is a cognitive bias that impacts our decision making when said if different ways. In other words, we are influenced by how the same fact or question is presented.

Rational Choice Theory Definition

Rational Choice Theory Definition

Rational choice theory is a concept that assumes people make rational choices which align to their own self-interest. Each individual is said to weigh up the cost and benefits and come to a rational choice.

Nash Equilibrium Definition

Nash Equilibrium Definition

Nash equilibrium refers to the situation whereby a group of individuals choose the most optimal strategy and do not deviate from that initial decision. Individuals stick to the initial decision in the knowledge that all other options are inferior.

Illusory Correlation Definition

Illusory Correlation Definition

Illusory correlation occurs when we incorrectly believe that two variables have a relationship with each other. The connection between the two variables is, in effect, an illusion.

Pygmalion Effect Definition

Pygmalion Effect Definition

The Pygmalion effect is where an individual’s performance is influenced by others’ expectations. In other words, higher expectations lead to higher performance.

Groupthink Definition

Groupthink Definition and Examples

Groupthink is the tendency for individuals to agree with each other in a group setting in order to conform and keep harmony. This can contribute to inefficient decision making as ideas and thoughts go unchallenged in favour of cohesion.