Rational Choice - Deepstash
Behavioral Economics, Explained

Learn more about leadershipandmanagement with this collection

How to make rational decisions

The role of biases in decision-making

The impact of social norms on decision-making

Behavioral Economics, Explained

Discover 52 similar ideas in

It takes just

7 mins to read

Rational Choice

In an ideal world, our decisions would be the result of a careful weighing of costs and benefits and informed by existing preferences. We would always make optimal decisions.

The theory of rational choice assumes that human actors have stable preferences and engage in maximizing behavior. 

279

3.18K reads

MORE IDEAS ON THIS

Bounded Rationality

Bounded Rationality

Bounded rationality is a term associated with Herbert Simon’s work of the 1950s. According to this view, our minds must be understood relative to the environment in which they evolved. There are restrictions to human information processing, due to limits in knowledge and computa...

266

2.22K reads

Diversification Bias and the Empathy Gap

Diversification Bias and the Empathy Gap

Time inconsistency also occurs when our present self fails to predict accurately the preferences of our future self, a point illustrated well by diversification bias.

When shopping for multiple future consumption episodes, I may choose the variety pack of cereal, only ...

275

1.21K reads

Time Discounting and Present Bias

Present events are weighted more heavily than future ones; for example, many people prefer to receive £100 now over £110 in a month’s time.

Discounting is non-linear, and its rate is not constant over time. People’s preference for receiving £100 a week...

280

1.23K reads

Information Avoidance

Information Avoidance

Information avoidance in behavioral economics refers to situations in which people choose not to obtain knowledge that is freely available.

Active information avoidance includes physical avoidance, inattention, the biased interpretation of information (see also confirmati...

288

1.38K reads

Too Much Information: Choice Overload

Humans’ bounded rationality is particularly well illustrated by the concept of choice overload. This phenomenon occurs as a result of too many choices being available to consumers.

Overchoice has been associated with unhappiness, decision fatigue, going with the default option, as ...

287

1.75K reads

Behavioral Economics (BE)

Behavioral Economics (BE)

BE uses psychological experimentation to develop theories about human decision-making and has identified a range of biases as a result of the way people think and feel.

BE is trying to change the way economists think about people’s perceptions of value and expressed prefere...

304

3.71K reads

Limited Information: The Importance of Feedback

Experience, good information, and prompt feedback are key factors that enable people to make good decisions.

  • Climate change, for example, has been cited as a particularly challenging problem in relation to experience and feedback. Climate change is invisible, diffuse, and a long-t...

268

1.46K reads

Social Dimensions

  • Trust is one of the explanations for discrepancies between actual behavior and that predicted by a model of self-interested actors, makes social life possible, and permeates economic relationships.
  • Dishonesty is the product of situations as well as both internal and external reward m...

263

1.13K reads

Prospect Theory

Our willingness to take risks is influenced by the way in which choices are framed, i.e. it is context-dependent.

Amos Tversky and Daniel Kahneman are perhaps best known for the development of prospect theory and published a number of papers that show that decisions are not always opt...

279

2.74K reads

Dual-System Theory

Dual-System Theory

Daniel Kahneman uses a dual-system theoretical framework to explain why our judgments and decisions often do not conform to formal notions of rationality.

  • System 1 consists of thinking processes that are intuitive, automatic, experience-based, and relatively unconscious.
  • Sys...

270

1.29K reads

Forecasting and Memory

When we make plans for the future, we are often too optimistic.

For example, we are subject to committing the planning fallacy by underestimating how long it will take us to complete a task and ignoring past experience. Similarly, when we try to predict how we will fee...

271

1.18K reads

Mental Accounting

Mental Accounting

The economist Richard Thaler coined the concept of mental accounting. According to Thaler:

  • People think of value in relative rather than absolute terms. They derive pleasure not just from an object’s value, but also the quality of the deal.
  • People fail to fully consider opport...

291

1.98K reads

Social Norms

Social Norms

  • Our preferences are not simply a matter of basic tastes; they are also influenced by norms, as manifested in gender roles, for example.
  • Social norms signal appropriate behavior or actions taken by the majority of people (although what is deemed ‘appropriate’ is itself subject to cont...

256

1.1K reads

CURATED FROM

CURATED BY

joa_fu

Creator. Beer ninja. Travel lover. Twitter evangelist. Lifelong writer. Zombie expert.

Related collections

More like this

'Rational choice theory' and 'Bounded rationality theory'

  • Rational choice theory thinks of people as economic super-men and women, also known as homo economicus. Economists use this theory to think about what 'economic man' would do, then add up the actions of billions of people to make models about how the economy works.

Behavioral economics

It is a field of study bringing together knowledge from psychology and economics to reveal how real people behave in the real world.

  • This is in contrast to the traditional economic view of human behavior, which assumed people always behave in accordance with rational,...

stash-superman-illustration

Explore the World’s

Best Ideas

200,000+ ideas on pretty much any topic. Created by the smartest people around & well-organized so you can explore at will.

An Idea for Everything

Explore the biggest library of insights. And we've infused it with powerful filtering tools so you can easily find what you need.

Knowledge Library

Powerful Saving & Organizational Tools

Save ideas for later reading, for personalized stashes, or for remembering it later.

# Personal Growth

Take Your Ideas

Anywhere

Organize your ideas & listen on the go. And with Pro, there are no limits.

Listen on the go

Just press play and we take care of the words.

Never worry about spotty connections

No Internet access? No problem. Within the mobile app, all your ideas are available, even when offline.

Get Organized with Stashes

Ideas for your next work project? Quotes that inspire you? Put them in the right place so you never lose them.

Join

2 Million Stashers

4.8

5,740 Reviews

App Store

4.7

72,690 Reviews

Google Play

Sean Green

Great interesting short snippets of informative articles. Highly recommended to anyone who loves information and lacks patience.

Ashley Anthony

This app is LOADED with RELEVANT, HELPFUL, AND EDUCATIONAL material. It is creatively intellectual, yet minimal enough to not overstimulate and create a learning block. I am exceptionally impressed with this app!

Shankul Varada

Best app ever! You heard it right. This app has helped me get back on my quest to get things done while equipping myself with knowledge everyday.

samz905

Don’t look further if you love learning new things. A refreshing concept that provides quick ideas for busy thought leaders.

Laetitia Berton

I have only been using it for a few days now, but I have found answers to questions I had never consciously formulated, or to problems I face everyday at work or at home. I wish I had found this earlier, highly recommended!

Jamyson Haug

Great for quick bits of information and interesting ideas around whatever topics you are interested in. Visually, it looks great as well.

Giovanna Scalzone

Brilliant. It feels fresh and encouraging. So many interesting pieces of information that are just enough to absorb and apply. So happy I found this.

Ghazala Begum

Even five minutes a day will improve your thinking. I've come across new ideas and learnt to improve existing ways to become more motivated, confident and happier.

Read & Learn

20x Faster

without
deepstash

with
deepstash

with

deepstash

Access to 200,000+ ideas

Access to the mobile app

Unlimited idea saving & library

Unlimited history

Unlimited listening to ideas

Downloading & offline access

Personalized recommendations

Supercharge your mind with one idea per day

Enter your email and spend 1 minute every day to learn something new.

Email

I agree to receive email updates