Behavioral Economics

Behavioral economics studies how psychological factors and cognitive biases cause people to make decisions that depart from pure rationality.

Bounded rationality is the idea that people make reasonable decisions within the limits of their information, time, and mental capacity.

The sunk cost fallacy is continuing an endeavor because of money or effort already spent, even when it is no longer worthwhile.

Loss aversion is the tendency to feel the pain of a loss more strongly than the pleasure of an equal-sized gain.

Prospect theory describes how people choose among risky options based on perceived gains and losses relative to a reference point, not final wealth.

Anchoring bias is the tendency to rely too heavily on the first piece of information (the anchor) when making decisions.

A nudge is a small change in how choices are presented that steers behavior without banning options or changing incentives.

The framing effect is when people react differently to the same choice depending on how it is worded or presented.

The endowment effect is the tendency to value something more highly simply because you own it, so you demand more to sell it than you would pay to buy it.

Mental accounting is the tendency to sort money into separate mental 'buckets' and treat it differently depending on its source or intended use.

The decoy effect is when adding a clearly inferior third option nudges shoppers toward a specific one of the two original choices.

Status quo bias is the tendency to stick with the current situation or default option rather than switch, even when a better alternative exists.