Economists now know that humans are not rational agents, maximising our utility every moment of every day. We make poor decisions, often choosing the less efficient outcome – and often do so predictably. We don’t want to give up something even though we’d be unlikely to buy it at that same price (loss aversion effect). We tend to overestimate the likelihood of events which we recall easier, which can be influenced by how recent the memories are or how unusual or emotionally charged they may be (availability heuristic). We place a disproportionately high value on objects that they partially assembled themselves, such as furniture from IKEA, regardless of the quality of the end result (actually known as the IKEA effect). Wikipedia now lists 116 different types of decision-making behavioural biases.
When not to buy a house
When not to buy a house
When not to buy a house
Economists now know that humans are not rational agents, maximising our utility every moment of every day. We make poor decisions, often choosing the less efficient outcome – and often do so predictably. We don’t want to give up something even though we’d be unlikely to buy it at that same price (loss aversion effect). We tend to overestimate the likelihood of events which we recall easier, which can be influenced by how recent the memories are or how unusual or emotionally charged they may be (availability heuristic). We place a disproportionately high value on objects that they partially assembled themselves, such as furniture from IKEA, regardless of the quality of the end result (actually known as the IKEA effect). Wikipedia now lists 116 different types of decision-making behavioural biases.