Behavioral Economics and Decision-Making Key Concepts and Theories Lecture Notes Study Material 2025/ 2026

Behavioral EconomicsBehavioral
& Decision-Making_
EconomicsKey
Behavioral
& Decision-Making_
Concepts
Economics
and Theories
Key
& Decision-Making_
Concepts
– Lecture
andNotes
Theories
Key_ Concepts
Study
– Lecture
Material.pdf
andNotes
Theories
_ Study
– Lecture
Material.pdf
Notes _ Study Material.pdf




Behavioral
Economics &
Decision-Making:
Key Concepts and
Theories – Lecture
Notes / Study
Material




Behavioral EconomicsBehavioral
& Decision-Making_
EconomicsKey
Behavioral
& Decision-Making_
Concepts
Economics
and Theories
Key
& Decision-Making_
Concepts
– Lecture
andNotes
Theories
Key_ Concepts
Study
– Lecture
Material.pdf
andNotes
Theories
_ Study
– Lecture
Material.pdf
Notes _ Study Material.pdf

,Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf




What is the primary focus of behavioral economics? Understanding how psychological factors influence economic decision-making.


Who won the Nobel Prize in Economics in 2002 for Daniel Kahneman
contributions to behavioral economics?


What is the endowment effect? The phenomenon where individuals value something more highly once they own it.


What are the two systems of reasoning in decision- System 1 (automatic, fast) and System 2 (deliberate, slow).
making?


What does System 1 in decision-making do? It makes quick impressions, judges distances, and responds emotionally.


What does System 2 in decision-making do? It performs complex tasks like hard math, searches for specific information, and
integrates pieces of information.


What is the difference between normative and descriptive Normative theories prescribe how decisions should be made, while descriptive
theories in economics? theories explain how decisions are actually made.


What is the Expected Utility Theory? A normative model that suggests individuals choose options that maximize their
expected utility.



Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf

, Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf




What are the three assumptions of Prospect Theory? 1. Complete information, 2. Cognitive capacity, 3. Invariance.


What is cognitive capacity in the context of decision- The ability and time an individual has to weigh every choice against others.
making?


What does invariance mean in decision-making? The preference order between two options should not depend on how they are
described.


What is the significance of the concavity in utility It implies that people experience diminishing marginal utility for wealth.
functions?


How does the framing of a decision affect choices? Different descriptions of the same choice can lead to different preferences.


What is the role of heuristics in decision-making? Heuristics are mental shortcuts that simplify decision-making but can lead to biases.


What is the importance of understanding decision-making It helps marketers, consumers, and managers make better decisions and understand
in business? consumer behavior.


What is the relationship between System 1 and System 2 in Both systems work in tandem, with System 2 monitoring and optimizing the
decision-making? performance of System 1.




Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf Behavioral Economics & Decision-Making_ Key Concepts and Theories.pdf