Tag: Behavioral Economics
-
Negative Externalities
Economic activities can impose unaccounted-for costs on society, known as negative externalities. These inefficiencies often lead to government interventions and have widespread implications, affecting issues as significant as climate change and public health.
-
FUD – Fear, Uncertainty, Doubt
Introduced in the computer sector during the 1970s, FUD stands for Fear, Uncertainty, Doubt. This tactic, designed to exploit human risk aversion, has expanded globally, shaping views in finance, politics, and health. Combatting its effects requires a commitment to transparent information dissemination and consistent fact-checking.
-
WYSIATI – What You See Is All There Is
The principle of WYSIATI highlights humanity’s propensity to draw conclusions from visible data while neglecting what might be omitted. Originally identified by Daniel Kahneman, this cognitive bias has significant ramifications across various fields, from politics to finance.
-
Schelling Point
In game theory, a Schelling point describes an intuitive focal solution people gravitate towards without direct communication. Named after its progenitor, economist Thomas Schelling, its reach extends to realms like negotiations, economics, and international affairs, driven by common societal frameworks and references.
-
Cognitive Bias
Cognitive biases, prevalent yet often unnoticed, shape decision-making processes. These systematic thinking errors—confirmation bias, hindsight bias, and more—affect individual choices, societal views, and interpersonal relationships. Strategies for minimizing their influence are part of a complex cognitive landscape.
-
Cashing Out
Cashing out is the conversion of an investment or business ownership stake into liquid assets, driven by motives like profit realization or risk management. This process, encompassing diverse strategies, is subject to various financial, legal, and emotional considerations. Its consequences, like increased liquidity or potential profit loss, necessitate careful planning and possible professional guidance.
-
Adverse Selection
Adverse selection happens when one party in a deal knows more than the other, leading to unfair outcomes. This can be a big issue in areas like insurance, loans, and used car sales. While there are strategies to manage it, unchecked adverse selection can cause market problems and privacy concerns.
-
Information Asymmetry
Information asymmetry is when one group knows more than another during a deal or interaction, which can tilt the balance of power. This can lead to unfair transactions, market issues, and power imbalances in areas such as finance, health, politics, and education, impacting decision-making and overall fairness.
-
Exploitative Interactions
In exploitative interactions, one party derives a benefit at the expense of another. These interactions are prevalent in ecological, economic, and social systems, and are influenced by principles of sustainability and evolutionary dynamics.