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...

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 ...

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...

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 ...

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 maxi...

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...

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...

• 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...

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...

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...

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...

• 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...