Behavioural Economics

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.

Hawthorne Effect Definition

Hawthorne Effect Definition

The Hawthorne Effect occurs when individuals adjust their behaviour as a result of being watched or observed. For instance, employees may work harder and more diligently knowing their manager is closely watching, or children behave better because they are being watched by their parents.

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.