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In economics, money illusion, or price illusion, is a cognitive bias where money is thought of in nominal, rather than real terms. In other words, the face value (nominal value) of money is mistaken for its purchasing power (real value) at a previous point in time.
Reference dependence is a central principle in prospect theory and behavioral economics generally. It holds that people evaluate outcomes and express preferences relative to an existing reference point, or status quo. It is related to loss aversion and the endowment effect. [1] [2]
Inflationary bias is the outcome of discretionary monetary policy that leads to a higher than optimal level of inflation. Depending on the way expectations are formed in the private sector of the economy, there may or may not be a transitory income increase.
Also called resource cost advantage. The ability of a party (whether an individual, firm, or country) to produce a greater quantity of a good, product, or service than competitors using the same amount of resources. absorption The total demand for all final marketed goods and services by all economic agents resident in an economy, regardless of the origin of the goods and services themselves ...
In cognitive science and behavioral economics, loss aversion refers to a cognitive bias in which the same situation is perceived as worse if it is framed as a loss, rather than a gain. [1] [2] It should not be confused with risk aversion, which describes the rational behavior of valuing an uncertain outcome at less than its expected value.
The neglect of probability, a type of cognitive bias, is the tendency to disregard probability when making a decision under uncertainty and is one simple way in which people regularly violate the normative rules for decision making. Small risks are typically either neglected entirely or hugely overrated.
Berkson's paradox, also known as Berkson's bias, collider bias, or Berkson's fallacy, is a result in conditional probability and statistics which is often found to be counterintuitive, and hence a veridical paradox. It is a complicating factor arising in statistical tests of proportions.
The field of economics originally assumed that humans were rational economic actors, and as it became apparent that this was not the case, the field began to change. The research of social preferences in economics started with lab experiments in 1980, where experimental economists found subjects' behavior deviated systematically from self ...