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.
Bounded rationality highlights the limitations of humans’ ability to make optimal decisions.
Anchoring is a cognitive bias where a specific piece of information is relied upon to make a decision. In other words, one factor is considered above in else in the decision-making processes.
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 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 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.
The Fundamental Attribution Error is when we think someone took an action because of their behaviour. However, the action was taken because of the situation they were in instead.
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.
The Pygmalion effect is where an individual’s performance is influenced by others’ expectations. In other words, higher expectations lead to higher performance.
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.
