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...

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...

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...

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...

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...

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 ...

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...

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...

• 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...