Mental accountingMental accounting (or psychological accounting) is a model of consumer behaviour developed by Richard Thaler that attempts to describe the process whereby people code, categorize and evaluate economic outcomes. Mental accounting incorporates the economic concepts of prospect theory and transactional utility theory to evaluate how people create distinctions between their financial resources in the form of mental accounts, which in turn impacts the buyer decision process and reaction to economic outcomes.
Framing effect (psychology)The framing effect is a cognitive bias where people decide between options based on whether the options are presented with positive or negative connotations. Individuals have a tendency to make risk-avoidant choices when options are positively framed, while selecting more loss-avoidant options when presented with a negative frame. In studies of the bias, options are presented in terms of the probability of either losses or gains. While differently expressed, the options described are in effect identical.
Public opinionPublic opinion, or popular opinion, is the collective opinion on a specific topic or voting intention relevant to society. It is the people's views on matters affecting them. The term originates from France, and first appeared in the 17th century, though writers had identified the importance of the opinion of the people long before this. Prior to the advent of mass media, public fora such as coffee houses and gentlemen's clubs were used as exchanges of opinion and some reputable locations had great influence.
Agenda-setting theoryAgenda setting describes the "ability (of the news media) to influence the importance placed on the topics of the public agenda". The theory suggests that the media has the ability to shape public opinion by determining what issues are given the most attention, and has been widely studied and applied to various forms of media. The study of agenda-setting describes the way media attempts to influence viewers, and establish a hierarchy of news prevalence. Nations judged to be endowed with more political power receive higher media exposure.
Heuristic (psychology)Heuristics is the process by which humans use mental short cuts to arrive at decisions. Heuristics are simple strategies that humans, animals, organizations, and even machines use to quickly form judgments, make decisions, and find solutions to complex problems. Often this involves focusing on the most relevant aspects of a problem or situation to formulate a solution. While heuristic processes are used to find the answers and solutions that are most likely to work or be correct, they are not always right or the most accurate.
Behavioral economicsBehavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors in the decisions of individuals or institutions, and how these decisions deviate from those implied by classical economic theory. Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience and microeconomic theory. The study of behavioral economics includes how market decisions are made and the mechanisms that drive public opinion.
RiskIn simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environment), often focusing on negative, undesirable consequences. Many different definitions have been proposed. The international standard definition of risk for common understanding in different applications is "effect of uncertainty on objectives".
Choice architectureChoice architecture is the design of different ways in which choices can be presented to decision makers, and the impact of that presentation on decision-making. For example, each of the following: the number of choices presented the manner in which attributes are described the presence of a "default" can influence consumer choice. As a result, advocates of libertarian paternalism and asymmetric paternalism have endorsed the deliberate design of choice architecture to nudge consumers toward personally and socially desirable behaviors like saving for retirement, choosing healthier foods, or registering as an organ donor.
Fuzzy-trace theoryFuzzy-trace theory (FTT) is a theory of cognition originally proposed by Valerie F. Reyna and Charles Brainerd that draws upon dual-trace conceptions to predict and explain cognitive phenomena, particularly in memory and reasoning. The theory has been used in areas such as cognitive psychology, human development, and social psychology to explain, for instance, false memory and its development, probability judgments, medical decision making, risk perception and estimation, and biases and fallacies in decision making.
Prospect theoryProspect theory is a theory of behavioral economics and behavioral finance that was developed by Daniel Kahneman and Amos Tversky in 1979. The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics. Based on results from controlled studies, it describes how individuals assess their loss and gain perspectives in an asymmetric manner (see loss aversion). For example, for some individuals, the pain from losing 1,000couldonlybecompensatedbythepleasureofearning2,000. Cognitive biasA cognitive bias is a systematic pattern of deviation from norm or rationality in judgment. Individuals create their own "subjective reality" from their perception of the input. An individual's construction of reality, not the objective input, may dictate their behavior in the world. Thus, cognitive biases may sometimes lead to perceptual distortion, inaccurate judgment, illogical interpretation, and irrationality. While cognitive biases may initially appear to be negative, some are adaptive.
Decision-makingIn psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either rational or irrational. The decision-making process is a reasoning process based on assumptions of values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action.
Bounded rationalityBounded rationality is the idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal. Limitations include the difficulty of the problem requiring a decision, the cognitive capability of the mind, and the time available to make the decision. Decision-makers, in this view, act as satisficers, seeking a satisfactory solution, with everything that they have at the moment rather than an optimal solution.
Influence of mass mediaIn media studies, mass communication, media psychology, communication theory, and sociology, media influence and the media effect are topics relating to mass media and media culture's effects on individuals' or audiences' thoughts, attitudes, and behaviors. Through written, televised, or spoken channels, mass media reach large audiences. Mass media's role in shaping modern culture is a central issue for the study of culture. Media influence is the actual force exerted by a media message, resulting in either a change or reinforcement in audience or individual beliefs.
StereotypeIn social psychology, a stereotype is a generalized belief about a particular category of people. It is an expectation that people might have about every person of a particular group. The type of expectation can vary; it can be, for example, an expectation about the group's personality, preferences, appearance or ability. Stereotypes are sometimes overgeneralized, inaccurate, and resistant to new information, but can sometimes be accurate. An explicit stereotype refers to stereotypes that one is aware that one holds, and is aware that one is using to judge people.
Affective forecastingAffective forecasting (also known as hedonic forecasting, or the hedonic forecasting mechanism) is the prediction of one's affect (emotional state) in the future. As a process that influences preferences, decisions, and behavior, affective forecasting is studied by both psychologists and economists, with broad applications. In The Theory of Moral Sentiments (1759), Adam Smith observed the personal challenges, and social benefits, of hedonic forecasting errors: [Consider t]he poor man's son, whom heaven in its anger has visited with ambition, when he begins to look around him, admires the condition of the rich .
