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    Behavioralecon:Glossary

    OverviewCourse Main Page-- Week 1: Introduction to Irrationality-- Week 2: The

    Psychology of Money-- Week 3: Dishonesty-- Week 4: Labor and Motivation-- Week

    5: Self-control-- Week 6: Emotion-- Glossary-- Transcripts of lectures-- Summaries

    of readings

    A list of terms to know for A Beginner's Guide to Irrational Behavior.

    A

    Action control theory

    Self-regulation theory suggesting that after choosing a course of action, people focus

    on how to effectively implement the chosen course of action and disregard or down-

    play alternatives.

    Adam-and-Eve problem

    Would you sacrifice eternity in the garden of Eden for an apple? (No, but I would for

    knowledge of good and evil :-))

    Adaptation

    In economics, described as economic adaptation. When an agent must change their

    economic characteristics based on some type of shock. The shock, whether positive or

    negative will affect the spending habits of the agent

    Affect heuristicThe positive and negative feelings that combine with reasoned analysis to guide our

    judgments, decisions, and actions; the sense (not necessarily conscious) that some-

    thing is good or bad. A mental shortcut in which emotional response, or "affect" in

    psychological terms, plays a lead role. Reading the words "lung cancer" usually gen-

    erates an affect of dread.

    Affective forecasting

    also known as 'hedonic forecasting' the prediction of one's affect (emotional state) in

    http://students.coba.unr.edu/econwiki/index.php?title=Adaptationhttps://share.coursera.org/wiki/index.php/Behavioralecon:Mainhttps://share.coursera.org/wiki/index.php/Summaries_of_readingshttps://share.coursera.org/wiki/index.php/Behavioralecon:The_Psychology_of_Moneyhttp://en.wikipedia.org/wiki/Affective_forecastinghttp://en.wikipedia.org/wiki/Affect_heuristichttp://students.coba.unr.edu/econwiki/index.php?title=Adaptationhttps://share.coursera.org/wiki/index.php/Behavioralecon:Mainhttps://share.coursera.org/wiki/index.php/Summaries_of_readingshttps://share.coursera.org/wiki/index.php/Transcripts_of_lectureshttps://share.coursera.org/wiki/index.php/Behavioralecon:Emotionhttps://share.coursera.org/wiki/index.php/Behavioralecon:Self-controlhttps://share.coursera.org/wiki/index.php/Behavioralecon:Labor_and_Motivationhttps://share.coursera.org/wiki/index.php/Behavioralecon:Dishonestyhttps://share.coursera.org/wiki/index.php/Behavioralecon:The_Psychology_of_Moneyhttps://share.coursera.org/wiki/index.php/Behavioralecon:Introduction_to_Irrationalityhttps://share.coursera.org/wiki/index.php/Behavioralecon:Main
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    the future. People are surprisingly poor judges of their future emotional states. For

    example, in predicting how events like winning the lottery might affect their happi-

    ness.

    Altruism

    (selflessness) actions taken for the welfare of others. sacrificing something for some-

    one other than the self(e.g. sacrificing time, energy or possessions) with no expecta-

    tion of any compensation.

    Altruistic cheating

    when individuals cheat to a higher degree because they realize that their actions can

    benefit people they like and care about

    Anchoring (and adjustment)

    A cognitive bias that describes the common human tendency to rely too heavily on

    the first piece of information offered (the "anchor") when making decisions.

    Anosognosia

    A deficit of self-awareness, resulting from physiological damage to the brain(some-

    times caused by stroke or traumatic brain injury), in which people who have sus-

    tained an injury to some part of their body deny the reality of their injury.

    Arousal

    Arousal is a physiological and psychological state of being awake or reactive to stim-

    uli.

    Asymmetric dominance

    (The phenomenon whereby consumers will tend to have a specific change in prefer-

    ence between two options when also presented with a third option that is inferior in

    all respects to one option; but, in comparison to the other option, it is inferior in some

    respects and superior in others. A higher percentage of consumers will prefer the

    dominating option than when the asymmetrically dominated option is absent. Syn-

    onym: Decoy effect.

    Attribute substitution

    http://en.wikipedia.org/wiki/Attribute_substitutionhttp://en.wikipedia.org/wiki/Asymmetric_dominance_effecthttp://en.wikipedia.org/wiki/Arousalhttp://en.wikipedia.org/wiki/Anchoringhttp://students.coba.unr.edu/econwiki/index.php?title=Altruistic_cheatinghttp://en.wikipedia.org/wiki/Altruism
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    when an individual has to make a judgment (of a target attribute) that is computa-

    tionally complex, and instead substitutes a more easily calculated heuristic attribute.

    Authority ranking relationship (AR)

    Relationship recognized by its clear superior-subordinate relationships (see Fiske's

    relational theory).

    Automated process

    Process taking place in the absence of effort, awareness, and intention and typically

    running to completion once initiated.

    Availability heuristic

    "if you can think of it, it must be important." the easier it is to recall the consequencesof something, the greater we perceive these consequences to be.

    B

    BDM Procedure

    Becker-DeGroot-Marschak (1964) procedure, asking participants to make a bid on

    their product between 0 and 100 cents (pretesting revealed that no participant bidmore than $1.00). A random number is then drawn between 0 and 100; if participants'

    number is equal to or above that number, they pay that amount and take their cre-

    ation home, if their bid is below the number, they don't buy it.

    Behavioral economics

    Behavioral economics and the related field, behavioral finance, study the effects of so-

    cial, cognitive, and emotional factors on the economic decisions of individuals and

    institutions and the consequences for market prices, returns, and the resource alloca-

    tion. The fields are primarily concerned with the bounds of rationality of economic

    agents.

    Bias

    Bias is an inclination of temperament or outlook to present or hold a partial perspec-

    tive at the expense of (possibly equally valid) alternatives in reference to objects, peo-

    ple, or groups. Anything biased generally is one-sided and therefore lacks a neutral

    http://en.wikipedia.org/wiki/Biashttp://en.wikipedia.org/wiki/Behavioral_economicshttp://en.wikipedia.org/wiki/Availability_heuristic
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    point of view

    Binding behavior

    The voluntary imposition of constraints (that are costly to overcome) on one's future

    choices in a strategic attempt to resist future temptations.

    Bonuses

    Money paid relating to how well one works. Synonym: Performance-related pay.

    Bounded rationality

    The idea that in decision-making, rationality of individuals is limited by the informa-

    tion they have, the cognitive limitations of their minds, and the finite amount of time

    they have to make a decision. It was proposed by Herbert A. Simon as an alternativebasis for the mathematical modeling of decision making, as used in economics and

    related disciplines.

    C

    Categorization malleability

    The availability of ways to categorize dishonest actions in more compatible terms andfind rationalizations for them.

    Change blindness

    when a change in a visual stimulus goes unnoticed by the observer

    Cheating

    Cheating refers to an immoral way of achieving a goal: the getting of reward for abili-

    ty by dishonest means.

    Choice architecture

    Term used by Cass Sunstein and Richard Thaler to describe the way in which deci-

    sions may (and can) be influenced by how the choices are presented.

    Choking under pressure

    http://en.wikipedia.org/wiki/Choice_architecturehttp://en.wikipedia.org/wiki/Cheatinghttp://en.wikipedia.org/wiki/Change_blindnesshttp://en.wikipedia.org/wiki/Bounded_rationalityhttp://en.wikipedia.org/wiki/Performance-related_pay
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    Situations in which increased motivation can result in a decrement in performance.

    Clutch players (NBA)

    In American sports terminology, "clutch" often refers to high levels of production in a

    critical game, the last hole of a Major championship in golf, or the final minute(s) in a

    close match. Being "clutch" is often seen by sportswriters and fans as an innate skill

    which some players have while others do not.

    Cognition

    A group of mental processes that includes attention, memory, producing and under-

    standing language, learning, reasoning, problem solving, and decision making.

    Cognitive bias

    Pattern of deviation in judgment whereby, inferences of other people and situations

    may be drawn in an illogical fashion. An individuals construction of social reality,

    not the objective input, may dictate ones behaviour in the social world. Thus, cogni-

    tive biases may sometimes lead to perceptual distortion, inaccurate judgment, illogi-

    cal interpretation, or what is broadly called irrationality.

    Cognitive dissonanceThe tension that results when there is a mismatch between our beliefs and our ac-

    tions. We cannot change what we did but we can change what we believe, so that's

    what we do.

    Cognitive load

    The strain resulting from having to maintain two types of content simultaneously in

    working memory. Among the cues associated with cognitive load are pausing and

    simplified sentence structure. One of the cues of deception.

    Cognitive psychology

    The study of higher mental processes such as attention, language use, memory, per-

    ception, problem solving, and thinking.

    Coherent arbitrariness

    Preferences are initially malleable but become imprinted, i.e. precisely defined and

    http://behavecontheory.wikispaces.com/Coherent+Arbitrariness+-+Stable+Demand+Curves+Without+Stable+Preferenceshttp://en.wikipedia.org/wiki/Cognitive_psychologyhttp://en.wikipedia.org/wiki/Cognitive_dissonancehttp://en.wikipedia.org/wiki/Cognitive_biashttp://en.wikipedia.org/wiki/Cognitionhttp://en.wikipedia.org/wiki/Clutch_(sports)
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    largely invariant, after the individual has made an initial decision. Absolute valua-

    tion can be manipulated, but subjects do not change their preferences once estab-

    lished.

    Communal sharing relationship (CS)

    Relationship earmarked by High levels of cooperation and we-ness (see Fiske's re-

    lational theory).

    Competition

    Competition in biology, ecology, and sociology, is a contest between organisms, ani-

    mals, individuals, groups, etc., for territory, a niche, or a location of resources, for re-

    sources and goods, for prestige, recognition, awards, mates, or group or social status,

    for leadership; it is the opposite of cooperation.

    Complexity of choice

    A problem facing consumers in the postindustrial society: too many choices. When

    confronted with a plethora of choices without perfect information, many people pre-

    fer to make no choice at all, even if making a choice would lead to a better outcome.

    Conflicts of interestA conflict of interest is a set of circumstances that creates a risk that professional

    judgement or actions regarding a primary interest will be unduly influenced by a sec-

    ondary interest.

    Contracts: complete vs. incomplete

    If the parties to an agreement could specify their respective rights and duties for

    every possible future state of the world, their contract would be complete. There

    would be no gaps in the terms of the contract. However, because it would be prohibi-

    tively expensive to write a complete contract, contracts in the real world are usually

    incomplete. Default rules will fill the gap in a contract in the absence of an agreed

    upon provision.

    Contrafreeloading

    The behavior in which animals offered the choice between eating food provided to

    them for free or working to get that food would eat the most food from the source

    http://www.birdchannel.com/bird-words/contrafreeloading.aspxhttp://en.wikipedia.org/wiki/Complete_contracthttp://en.wikipedia.org/wiki/Conflict_of_interesthttp://en.wikipedia.org/wiki/Choice_overloadhttp://en.wikipedia.org/wiki/Competition
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    that required effort.

    Controlled process

    Process involving conscious effort, awareness, and intention, that can be stopped at

    will.

    Cost/benefit analysis

    A systematic process for calculating and comparing benefits and costs of a project,

    decision or government policy.

    Counteractive control

    A variety of cognitive, affective, and motivational processes in order to counteract the

    influence of short-term costs and, thus, secure long-term outcomes when faced with aself-control dilemma in which short-term costs are in opposition to long-term out-

    comes (e.g. discomfort of medical checkup vs long-term health benefits).

    Counteractive control theory (CCT)

    Valenced short-term outcomes may elicit more intense self-control efforts that, in

    turn, act to increase the likelihood of choosing according to long-term outcomes.

    Counterfactual thinking

    The tendency people have to imagine alternatives to reality (what if...).

    Creative dishonesty

    The idea that being more creative, or being primed to be creative, can lead to more

    dishonest behavior. Creative individuals are thought to have the capabilities to findloopholes and then rationalize unethical behavior.

    D

    Decoy effect

    The phenomenon whereby consumers will tend to have a specific change in prefer-

    ence between two options when also presented with a third option that is inferior inall respects to one option; but, in comparison to the other option, it is inferior in some

    respects and superior in others. A higher percentage of consumers will prefer the

    http://en.wikipedia.org/wiki/Decoy_effecthttp://students.coba.unr.edu/econwiki/index.php?title=Creative_Dishonestyhttp://en.wikipedia.org/wiki/Cost-benefit_analysis
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    dominating option than when the asymmetrically dominated option is absent. Syn-

    onym: Asymmetric dominance.

    Descriptive norms

    Norms specifying what most people do in a particular situation. To be distinguished

    from injunctive norms.

    Descriptive theories

    Simply model how people actually choose, often by stressing systematic departures

    from the normative theory.

    Deterrence hypothesis

    Prediction that the introduction of a penalty that leaves everything else unchangedwill reduce the occurrence of the behavior subject to the fine.

    Diminishing return

    The law of diminishing returns (also law of diminishing marginal returns or law of

    increasing relative cost) states that in all productive processes, adding more of one

    factor of production, while holding all others constant ("ceteris paribus"), will at some

    point yield lower per-unit returns.

    Disclosure (sunshine policies)

    Certain professionals are required either by rules related to their professional organi-

    zation, or by statute, to disclose any actual or potential conflicts of interest.

    Discount rate

    An economic term which refers to an increase in value required to compensate for a

    delay.

    Dishonesty

    Dread risk

    A low-probability, high-consequence event, such as the terrorist attack on September11, 2001.

    http://en.wikipedia.org/wiki/Dishonestyhttp://painconsortium.nih.gov/symptomresearch/chapter_4/sec3/chas3pg1.htmhttp://en.wikipedia.org/wiki/Conflict_of_interestDisclosurehttp://en.wikipedia.org/wiki/Diminishing_return
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    Dual-process theories of thinking.

    Theory that "people apprehend reality in two fundamentally different ways, one vari-

    ously labeled intuitive, automatic, natural, nonverbal, narrative, and experiential, and

    the other analytical, deliberative, verbal, and rational (Epstein). Stanovich and West

    (2000) labeled these two modes of thinking System 1 and System 2. One of the charac-

    teristics of System 1, the experiential or intuitive system, is its affective basis. Al-though analysis (System 2) is certainly important in many decision-making circum-

    stances, reliance on affect and emotion is generally a quicker, easier, and more effi-

    cient way to navigate in a complex, uncertain and sometimes dangerous world.

    Duration neglect

    when duration isn't proportional to value. a component of peak-end-rule

    E

    Effectance

    Ability to successfully produce desired outcomes in ones environment.

    Effort justification

    The more effort people put into some pursuit, the more they come to value it.

    Egg Theory

    The minimal effort required to add eggs and milk to a cake mix makes us value the

    cake more.

    Ego depletion

    When we are continually exerting self-control, our ability to resist temptation weak-

    ens (Roy Baumeister).

    Emotion

    A positive or negative experience that is associated with a particular pattern of physi-

    ological activity.

    Empathy gap

    http://en.wikipedia.org/wiki/Empathy_gaphttp://en.wikipedia.org/wiki/Emotionhttp://en.wikipedia.org/wiki/Duration_neglect
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    The tendency to underestimate the influence or strength of feelings, in either oneself

    or others.

    Empathy

    The capacity to recognize emotions that are being experienced by another person.

    Endowment effect

    The fact that people often demand much more to give up an object than they would

    be willing to pay to acquire it.

    Equality matching relationship (EM)

    EM relationships lie somewhere between CS and AR relation- shipsthey are very

    structured but exhibit equality. In EM relationships, everybody receives the same re-wards, and reci- procity is monitored to ensure that the scales never get too far out of

    balance (see Fiske's relational theory).

    Expectation

    What is considered the most likely to happen; a belief that is centered on the future.

    Expected utility

    Theory of utility in which "betting preferences" of people with regard to uncertain

    outcomes (gambles) are represented by a function of the payouts (whether in money

    or other goods), the probabilities of occurrence, risk aversion, and the different utility

    of the same payout to people with different assets or personal preferences.

    Experiment

    F

    Fairness (distributive justice)

    In Social Psychology, Distributive Justice is defined as perceived fairness of how re-

    wards and costs are shared by (distributed across) group members.[1] For example,

    when workers of the same job are paid different salaries, group members may feel

    that distributive justice has not occurred.

    Fairness (procedural justice)

    http://en.wikipedia.org/wiki/Procedural_justicehttp://en.wikipedia.org/wiki/Distributive_justicehttp://en.wikipedia.org/wiki/Experimenthttp://en.wikipedia.org/wiki/Expected_utilityhttp://en.wikipedia.org/wiki/Expectation_(epistemic)http://en.wikipedia.org/wiki/Endowment_effecthttp://en.wikipedia.org/wiki/Empathy
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    Procedural justice concerns the fairness and the transparency of the processes by

    which decisions are made, and may be contrasted with distributive justice (fairness in

    the distribution of rights or resources), and retributive justice (fairness in the punish-

    ment of wrongs).

    Fairness (social justice)

    Social justice is justice exercised within a society, particularly as it is applied to and

    among the various social classes of a society.

    Fairness

    Fair division is the problem of dividing a set of goods between several people, such

    that each person receives his/her due share.

    Fiskes relational theory

    Fiskes model posits four basic types of social relationships: communal sharing (CS),

    authority ranking (AR), equality matching (EM), and market pricing (MP) .

    Fixed cost

    In economics, fixed expenses are business expenses that are not dependent on the lev-

    el of goods or services produced by the business.[1] They tend to be time-related,

    such as salaries or rents being paid per month, and are often referred to as overhead

    costs. This is in contrast to variable costs, which are volume-related (and are paid per

    quantity produced).

    Fluency

    Fluency is the ease of which something is processed. Ease of processing can exist in

    several forms depending on the modality in which processing occurs. Processing flu-

    ency is the ease with which information is processed. Perceptual fluency is the ease of

    processing stimuli based on manipulations to perceptual quality. The ease with

    which information can be retrieved from memory is retrieval fluency.

    Framing

    An inevitable process of selective influence over the individual's perception of themeanings attributed to words or phrases. People build a series of mental filters

    through biological and cultural influences. They use these filters to make sense of the

    http://en.wikipedia.org/wiki/Framing_(social_sciences)http://en.wikipedia.org/wiki/Processing_fluencyhttp://en.wikipedia.org/wiki/Fixed_costhttp://en.wikipedia.org/wiki/Fair_divisionhttp://en.wikipedia.org/wiki/Social_justice
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    world. The choices they then make are influenced by their creation of a frame.

    Fudge factor

    The amount of cheating you allow yourself before you start thinking of yourself as

    dishonest. The fudge factor shrinks when people are reminded of moral codes. It ex-

    pands when the distance from money is increased (e.g. by using tokens) and when

    we see other people cheating.

    Fungibility

    Fungibility is the property of a good or a commodity whose individual units are ca-

    pable of mutual substitution, such as crude oil, shares in a company, bonds, precious

    metals, or currencies. Example: Cash is fungible; two ten-dollar notes can be ex-

    changed for a twenty-dollar note.

    G

    Gamification

    The use of game thinking and game mechanics in a non-game context in order to en-

    gage users and solve problems.

    Gifts

    An object given without the expectation of payment. Although gift-giving might in-

    volve an expectation of reciprocity, a gift is meant to be free.

    H

    HabitA more or less fixed way of thinking, willing, or feeling acquired through previous

    repetition of a mental experience

    Habituation

    a decrease in response to a stimulus after repeated presentations.

    Hedonic calculus

    An algorithm formulated by utilitarian philosopher Jeremy Bentham for calculating

    http://en.wikipedia.org/wiki/Hedonic_calculushttp://en.wikipedia.org/wiki/Habituationhttp://en.wikipedia.org/wiki/Habit_(psychology)http://en.wikipedia.org/wiki/Gifthttp://en.wikipedia.org/wiki/Gamificationhttp://en.wikipedia.org/wiki/Fungibilityhttp://students.coba.unr.edu/econwiki/index.php?title=Fudge_factor
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    the degree or amount of pleasure that a specific action is likely to cause.

    Hedonic treadmill

    The supposed tendency of humans to quickly return to a relatively stable level of

    happiness despite major positive or negative events or life changes. According to this

    theory, as a person makes more money, expectations and desires rise in tandem,

    which results in no permanent gain in happiness.

    Herding

    Herd behavior describes how individuals in a group can act together without

    planned direction.

    Heuristic

    Strategy using readily accessible, through loosely applicable, information to control

    problem solving in human beings and machines.

    Hindsight bias

    AKA the knew-it-all-along effect or creeping determinism: the inclination to see

    events that have already occurred as being more predictable than they were before

    they took place.

    Hot-cold empathy gap

    Misjudgments that occur between different visceral states.

    Hot-hand fallacy

    The fallacious belief that a person who has experienced success with a random eventhas a greater chance of further success in additional attempts.

    Hyperbolic discounting

    Immediately available rewards have a disproportionate effect on preferences relative

    to more delayed rewards, causing a time-inconsistent taste for immediate gratifica-

    tion.

    I

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    Identifiable victim effect

    We care more about suffering when it is represented by one individual.

    Idiosyncratic fit

    The fact that a given solution fits your very personal needs very well.

    IKEA effect

    Labor alone can be sufficient to induce greater liking for the fruits of ones labor:

    Even constructing a standardized bureau, an arduous, solitary task, can lead people

    to overvalue their (often poorly constructed) creations. Named after IKEA, the

    Swedish manufacturer whose products typically arrive with some assembly required.

    Impulsive purchasing

    Behavior that is not regulated and that results from an unplanned spontaneous im-

    pulse. In particular, impulsive purchasing involves getting a sudden urge to buy

    something without advance intention or plan and then acting on that impulse with-

    out carefully or thoroughly considering whether the purchase is consistent with ones

    long range goals, ideals, resolves, and plans.

    In-group/outgroup

    In sociology and social psychology, an ingroup, is a social group to which a person

    psychologically identifies as being a member. By contrast, an outgroup is a social

    group to which an individual does not identify.

    Inattentional blindness

    The failure to notice an unexpected stimulus that is in one's field of vision when other

    attention-demanding tasks are being performed.

    Inflation

    A rise in the general level of prices of goods and services in an economy over a peri-

    od of time.

    Injunctive norms

    Norms specifying the particular behaviors that most people approve or disapprove

    http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inattentional_blindnesshttp://en.wikipedia.org/wiki/Ingroups_and_outgroupshttp://danariely.com/tag/ikea-effect/http://en.wikipedia.org/wiki/Identifiable_victim_effect
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    of. To be distinguished from descriptive norms.

    Intertemporal discounting

    The tendency of people to discount rewards as they approach a temporal horizon in

    the future or the past (i.e., become so distant in time that they cease to be valuable or

    to have additive effects). To put it another way, it is a tendency to give greater value

    to rewards as they move away from their temporal horizons and towards the "now".

    Intra-empathy gap

    Our inability to make predictions about our future actions in an emotional state.

    Irrationality

    Cognition, thinking, talking or acting without inclusion of rationality; an action oropinion given through inadequate use of reason, emotional distress, or cognitive defi-

    ciency.

    J

    K

    L

    Labor

    A measure of the work done by human beings.

    Level of mutability of the stimulus

    The level of mutability of the stimulus (e.g. information, object, circumstances) is theextent to which this stimulus is modifiable. Low mutability suggests that it is very

    difficult to imagine the situation had been different, while high mutability means that

    this is easy.

    Libertarian paternalism

    A philosophy that advocates designing institutions that help people make better deci-

    sions but do not impinge on their freedom to choose. Automatic enrollment is a good

    example of libertarian paternalism.

    http://en.wikipedia.org/wiki/Labour_(economics)http://en.wikipedia.org/wiki/Irrationality
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    Licensing effect

    The subconscious phenomenon whereby increased confidence and security in ones

    self-image or self-concept tends to make that individual worry less about the conse-

    quences of subsequent immoral behavior and, therefore, more likely to make im-

    moral choices and act immorally. Synonym: self-licensing.

    Life cycle theory of saving

    Households are assumed to want to smooth consumption over the life cycle and are

    expected to solve the relevant optimization problem in each period before deciding

    how much to consume and how much to save. Actual household behavior might dif-

    fer from this optimal plan.

    Limbic system

    A complex set of brain structures that lies on both sides of the thalamus, right under

    the cerebrum. It appears to be primarily responsible for our emotional life, and has a

    great deal to do with the formation of memories.

    Loss aversion

    People's tendency to strongly prefer avoiding losses to acquiring gains. Some studiessuggest that losses are twice as powerful, psychologically, as gains. First convincingly

    demonstrated by Amos Tversky and Daniel Kahneman.

    Lottery

    A lottery is a form of gambling which involves the drawing of lots for a prize which

    may be a certain amount of money.

    M

    Macbeth effect

    A threat to ones moral purity induces the need to cleanse oneself.

    Malingering

    Telling lies to obtain sickness benefits.

    Marginal cost

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    In economics and finance, marginal cost is the change in the total cost that arises

    when the quantity produced changes by one unit. That is, it is the cost of producing

    one more unit of a good.

    Market norms

    Account for wages, prices, rents, cost benefits, and repayment being essential. Differ-

    ent from: social norms

    Market pricing relationship (MP)

    Relationship involving ongoing cost-benefit analysis, and participants payments for

    their labor are based on a wage rate that reflects the amount and quality of the work

    performed (see Fiske's relational theory).

    Mental accounting

    We assign money to mental categories. This assignment determines how we feel

    about the money. We treat unassigned money differently.

    Mental dualism

    Mental process that ensures that the mental processes that are the target of self-de-

    ception do not have access to the same information as the mental processes deceiving

    the self. Types of dualisms: implicit versus explicit memory, implicit versus explicit

    attitudes, and automatic versus controlled processes.

    Money

    Any object or record that is generally accepted as payment for goods and services

    and repayment of debts in a given socio-economic context or country.

    Morality

    The differentiation of intentions, decisions, and actions between those that are "good"

    (or right) and those that are "bad" (or wrong). The philosophy of morality is ethics. A

    moral code is a system of morality (according to a particular philosophy, religion,

    culture, etc.).

    Motivation

    Motivation is a psychological feature that arouses an organism to act towards a de-

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    sired goal and elicits, controls, and sustains certain goal directed behaviors. It can be

    considered a driving force; a psychological one that compels or reinforces an action

    toward a desired goal. For example, hunger is a motivation that elicits a desire to eat.

    N

    Nomothetic approachApproach based on what Kant described as a tendency to generalize. It describes the

    effort to derive laws that explain objective phenomena in general.

    Norm theory

    Theory presented by Kahneman and Miller, postulating that norms are computed af-

    ter the event has occurred rather than in advance. Specifically, they proposed thateach stimulus selectively recruits its own alternatives and is interpreted in a rich

    context of remembered and constructed representations of what it could have been,

    might have been, or should have been.

    Norm-focus theory

    According to norm-focus theory (Cialdini), the social context determines whether

    people attend to descriptive or injunctive norms at a particular time and how thesenorms will impinge on an individuals immediate behavior.

    Normative theories

    Characterize rational choice and are often derived by solving some kind of optimiza-

    tion prob- lem. The life cycle hypothesis is an example of a normative theory of sav-

    ing since it is based on the solution to a lifetime consumption-smoothing problem.

    Not-Invented-Here bias

    Syndrome in which people, e.g. managers, refuse to use perfectly good ideas devel-

    oped elsewhere in favor of their sometimes inferior internally-developed ideas.

    O

    Opportunity cost

    What you are giving up by choosing one thing over another. Synonym: Shadow val-

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    ue of money.

    Opt-out schemes

    Schemes that tempt people to eat healthy food, save money and obey laws by making

    these the default options that require no effortful self-control.

    P

    Pain of paying

    The agony of parting with our money. Dan Ariely says it has 3 components: (1) the

    opportunity cost, (2) a hassle component, (3) a moral tax with its associated guilt. It

    is influenced by the method and the timing of paying.

    Perception

    The organization, identification, and interpretation of sensory information in order to

    represent and understand the environment.

    Personal decision

    A situation where an individual can make a choice among two or more alternatives.

    This assumes that the individual recognizes that he or she has a choice and has con-trol of this choice.

    Placebo

    A simulated or otherwise medically ineffectual treatment for a disease or other med-

    ical condition intended to deceive the recipient. Sometimes patients given a placebo

    treatment will have a perceived or actual improvement in a medical condition, a phe-

    nomenon commonly called the placebo effect.

    Pluralistic ignorance

    A situation where a majority of group members privately reject a norm, but assume

    incorrectly that most others accept it, also described as 'no one believes, but everyone

    thinks that everyone believes, or no one dares to say they dont understand because

    they incorrectly assume that everyone else understands. The effect is especially pow-

    erful in large groups.

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    Potential awareness

    Situation in which the individual consciously knows the welcome information that

    has been gathered but also has some awareness that unwelcome information could

    be around the next corner.

    PrecommitmentA voluntary imposition of constraints on one's future actions in order to limit tempta-

    tions (and thus enhance self-control). Application: An example is when an individual

    signs up for automatic contributions to a retirement account (as opposed to random,

    voluntary contributions). The automatic contributions act to make it more difficult

    (requires action) in order to not contribute.

    Prepayment

    Payment in advance of delivery of services or goods.

    Prescriptive theories

    Attempts to offer advice on how people can improve their decision making and get

    closer to the normative ideal. Prescriptions often have a second-best quality.

    Present focus bias

    The tendency to give more weight to our current environment or state.

    Projection bias

    The tendency to overpredict the degree to which one's future tastes will resemble

    one's current tastes

    Prospect theory

    Behavioral economic theory developed by Amos Tversky and Daniel Kahneman, de-

    scribing the way people chose between probabilistic alternatives that involve risk,

    where the probabilities of outcomes are known. The theory states that people make

    decisions based on the potential value of losses and gains rather than the final out-

    come, and that they evaluate these losses and gains using certain heuristics. The mod-

    el is descriptive: it tries to model real-life choices, rather than optimal decisions.

    Psychophysical function

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    Function characterizing our diminished sensitivity to a wide range of perceptual and

    cognitive entitiesbrightness, loudness, heaviness, and moneyas their underlying

    magnitudes increase.

    Psychophysical numbing

    Diminished sensitivity to the value of life.

    Q

    Qualia

    The feeling of emotions; the internal and subjective component of sense perceptions,

    arising from stimulation of the senses by phenomena.

    R

    Rational choice theory

    A framework for understanding and often formally modeling social and economic

    behavior. Rational choice theory uses a specific and narrower definition of "rationali-

    ty" simply to mean that an individual acts as if balancing costs against benefits to ar-

    rive at action that maximizes personal advantage.

    Rationality

    A rational decision is one that is not just reasoned, but is also optimal for achieving a

    goal or solving a problem. Rational choice theory uses a specific and narrower defini-

    tion of "rationality" simply to mean that an individual acts as if balancing costs

    against benefits to arrive at action that maximizes personal advantage.

    Rationalization

    An unconscious defense mechanism in which perceived controversial behaviors or

    feelings are logically justified and explained in a rational or logical manner in order

    to avoid any true explanation, and are made consciously tolerable or even ad-

    mirable and superior by plausible means

    Readily available alternatives

    Alternatives that the decision maker would have known about and could have cho-

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    sen without investing much time or money.

    Reciprocity

    Responding to a positive action with another positive action, rewarding kind actions.

    As a social construct, reciprocity means that in response to friendly actions, people

    are frequently much nicer and much more cooperative than predicted by the self-in-

    terest model; conversely, in response to hostile actions they are frequently much

    more nasty and even brutal.

    Region beta-paradox

    Intense hedonic states trigger psychological processes that are designed to attenuate

    them, and thus intense states may abate more quickly than mild states.. These errors

    of prediction are discussed as instances of a more general phenomenon known as theregion-beta paradox

    Regret or dissonance reduction processes

    Attempts to justify engagement in a costly course of action. The greater the costs as-

    sociated with a course of action, the greater the need to justify engaging in it.

    RegretThe comparison between where we are in life and where we could have been.

    Relative accounting

    Evaluating the difference in amounts or changes compared to a base amount instead

    of in absolute terms. Application: We are more likely to drive an extra five miles to

    save $5 on a $50 tank of gas than we are to save $10 on a $500 new computer.

    Relativity link 3

    Evaluating where another individual stands relative to you and your social standing.

    Application: We are more inclined to help individuals who are behind us in society.

    We are more likely to give donations to homeless individuals as opposed to giving to

    individuals who are ahead of us in social class, i.e. the wealthy.

    Relativity

    The concept that points of view have no absolute truth or validity, having only rela-

    http://en.wikipedia.org/wiki/Relativismhttp://students.coba.unr.edu/econwiki/index.php?title=Relative_Standinghttp://students.coba.unr.edu/econwiki/index.php?title=Relative_Accountinghttp://en.wikipedia.org/wiki/Regret_(emotion)http://en.wikipedia.org/wiki/Reciprocity_(social_psychology)
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    tive, subjective value according to differences in perception and consideration.

    Representativeness heuristic

    Kahneman & Tversky's definition of representativeness: "the degree to which [an

    event] (i) is similar in essential characteristics to its parent population, and (ii) reflects

    the salient features of the process by which it is generated". When people rely on rep-

    resentativeness to make judgements, they are likely to judge wrongly because the fact

    that something is more representative does not make it more likely. This heuristic is

    used because it is an easy computation. The problem is that people overestimate its

    ability to accurately predict the likelihood of an event. Thus it can result in neglect of

    relevant base rates and other cognitive biases.

    Reward substitution

    Using an alternate reward that is immediate and therefore more motivating. Reward

    substitution can get us to act like we care about the world while we really care about

    our image.

    Risk aversion

    The reluctance of a person to accept a bargain with an uncertain payoff rather than

    another bargain with a more certain, but possibly lower, expected payoff.

    Risk perception

    The subjective judgment that people make about the characteristics and severity of a

    risk.

    S

    Salience

    A term widely used in the study of perception and cognition to refer the degree to

    which to any aspect of a stimulus that, for any of many reasons, stands out from the

    rest.

    Satisficing

    A a decision-making strategy that attempts to meet an acceptability threshold. This is

    contrasted with optimal decision-making, an approach that specifically attempts to

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    find the best option available. It explains the tendency to select the first option that

    meets a given need or select the option that seems to address most needs rather than

    the optimal solution.

    Save More Tomorrow (or SMarT)

    Program to help people save more. The basic idea is to give workers the option of

    committing themselves now to increasing their savings rate later, each time they get a

    raise.

    Self-affirmation

    By reflecting on their important values or past positive behaviors, people are remind-

    ed that they are moral and efficacious individuals, thereby affirming their self-worth.

    A cornerstone of self-affirmation theory is the idea that specific attacks on ones abili-ties or morals such as failure on a test do not need to be dealt with directly, but

    rather can be addressed at a more general level by restoring or reaffirming a global

    sense of self-worth.

    Self-control contract

    See: Ulysses contract.

    Self-control

    An umbrella construct that bridges concepts and measurements from different disci-

    plines (e.g. impulsivity, conscientiousness, self-regulation, delay of gratification, inat-

    tention-hyperactivity, executive function, willpower, intertemporal choice). "What

    you exercise when you try to change something about how you would otherwise

    think, feel or behave in any given situation." (Hedy Kober). "The common thread run-

    ning through diverse conceptualizations of self-control is the idea of effortful regula-tion of the self by the self." (Angela Duckworth)

    Self-deception

    According to Von Hippel and Trivers: an information-processing bias that gives pri-

    ority to welcome over unwelcome information in a manner that reflect the individ-

    ual's goals. Examples: biased information search strategies, biased interpretive pro-

    cesses, biased memory processes, rationalization and convincing the self that a lie istrue.

    http://en.wikipedia.org/wiki/Self-control
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    Self-herding

    Behavior whereby we consult our memory rather than our preferences when faced

    with the question 'what would you like?'. We tend to stick to our habits: future deci-

    sions are influenced by previous decisions.

    Self-licensingThe subconscious phenomenon whereby increased confidence and security in ones

    self-image or self-concept tends to make that individual worry less about the conse-

    quences of subsequent immoral behavior and, therefore, more likely to make im-

    moral choices and act immorally. Synonym: licensing effect.

    Self-verification

    Accurately gauging one's abilities (reality-oriented).

    Shadow value of money

    What you are giving up by choosing one thing over another. Synonym: Opportunity

    cost.

    Simple model of rational crime

    States that whether people commit a crime or not is determined by a cost benefit

    analysis. The potential benefits are the amount to be gained, the potential costs are

    the risk of getting caught and the punishment. There is no morality involved.

    Sisyphus

    In Greek mythology Sisyphus was a king punished for chronic deceitfulness by being

    compelled to roll an immense boulder up a hill, only to watch it roll back down, and

    to repeat this action forever.

    SMORC (Simple Model of Rational Crime)

    States that whether people commit a crime or not is determined by a cost benefit

    analysis. The potential benefits are the amount to be gained, the potential costs are

    the risk of getting caught and the punishment. There is no morality involved.

    Social facilitation paradigm

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    The tendency for people to do better on tasks when in the presence of other people.

    This works only if we are good at the task. If the task is novel, performance will be

    worse.

    Social identity theory

    Theory according to which group members tend to use their own group to maintain

    or enhance a positive social identity and self-esteem, and as a consequence are moti-

    vated to conform with norms that provide them with an in-group identity, rather

    than an out-group one.

    Social norms vs. market norms

    Social norms are group-held beliefs about how members should behave in a given

    context. Include friendly requests where instant payback is not required. Differentfrom: market norms.

    Social proof

    Proof that someone from your group, from your background behaves in the same

    way.

    Social proof (Cialdini)People look to others to guide their own behavior, especially when uncertain (from

    Noah Goldstein's guest lecture).

    Social psychology

    The scientific study of how people's thoughts, feelings, and behaviors are influenced

    by the actual, imagined, or implied presence of others.

    Spendthrift

    Consumer who experience minimal pain of payment and, therefore, ends up spend-

    ing more than what he himself would consider as normatively appropriate (defini-

    tion of Rick, Cryder, and Loewenstein). Opposite: Tightwad

    Status quo bias

    Cognitive bias, irrational preference for the current state of affairs. The current base-

    line (or status quo) is taken as a reference point, and any change from that baseline is

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    perceived as a loss.

    Sunk cost effect

    The fact that people continue to devote resources to failing projects in which they

    have previously invested.

    Sunshine policy

    Policy intended to achieve greater "transparency" and thereby reduce nepotism, cor-

    ruption, collusion, cronyism, conflicts of interest, etc. It comes for a famous quote by

    Supreme Court Justice Louis Brandeis, "Sunshine is the best disinfectant", meaning

    that transparency will prevent dishonesty and conflicts of interest.

    Suppression

    Situation in which, in an effort to control nonverbal signs of nervousness that might

    reveal deceptive intent, people try to control their face, trunk, and limbs. One of the

    cues of deception.

    Symbolic self-completion

    People are motivated to complete their self- definitions (e.g., musicians) when indica-

    tors or symbols of this definition are lacking (e.g., skills) by engaging in activities that

    complete the symbols (e.g., training). Thus, when moral self-definition is at stake,

    such as when one has indulged in morally questionable activities, one should natural-

    ly be motivated to engage in activities that will restore moral integrity.

    T

    Target-hardeningA crime reduction policy aimed at discouraging would-be offenders by making law-

    breaking require effortful planning (e.g. antitheft devices require more advance plan-

    ning to steal a car).

    Tightwad

    Consumer whose affective reaction to spending may lead her to spend less than her

    more deliberative selves would prefer (definition of Rick, Cryder, and Loewenstein).

    Opposite: Spendthrift. In common usage, a tightwad is a slang term for a miser.

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    Time-inconsistent preferences

    Humans have a systematic tendency to switch towards "vices" (products or activities

    which are pleasant in the short term) from "virtues" (products or activities which are

    seen as valuable in the long term) as the moment of consumption approaches, even if

    this involves changing decisions made in advance. Consider having the choice be-

    tween getting the day off work tomorrow or getting a day and a half off work onemonth from now. Suppose you would choose one day off tomorrow. Now suppose

    that you were asked to make that same choice ten years ago. That is, you were asked

    then whether you would prefer getting one day off in ten years or getting one and a

    half days off in ten years and one month. Suppose that then you would have taken

    the day and a half off. This would be a case of time inconsistency because your rela-

    tive preferences for tomorrow versus one month from now would be different at two

    different points in time namely now versus ten years ago. The decision made ten

    years ago indicates a preference for delayed gratification, but the decision made just

    before the fact indicates a preference for immediate pleasure.

    Toothbrush theory

    We all need a toothbrush, we all want a toothbrush, but nobody wants to use any-

    body elses toothbrush. We want to create our own ideas and theories, but we dont

    want to rely on the ideas of others.

    Transaction cost

    A cost incurred in making an economic exchange (restated: the cost of participating

    in a market.

    Trolley problem

    A thought experiment in ethics, first introduced by Philippa Foot in 1967. The generalform of the problem is this: Person A can take an action which would benefit many

    people, but in doing so, person B would be unfairly harmed. Under what circum-

    stances would it be morally just for Person A to violate Person B's rights in order to

    benefit the group?

    Two-system theory

    Provides an account of how a phenomenon can occur in two different ways, or as a

    result of two different processes. Often, the two processes consist of an implicit (auto-

    matic), unconscious process and an explicit (controlled), conscious process.

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    U

    Ultimatum bargaining game

    A game in which a proposer offers a division of a commodity (e.g., chips to be con-

    verted to money), and a responder can accept or reject the proposed division. If the

    responder accepts, the commodity is divided as proposed; if the responder rejects,

    neither party receives anything.

    Ulysses (commitment) contracts

    Contract in which you know your future self will be tempted and you bind your cur-

    rent self to prevent your future self from misbehaving.

    Utility

    A representation of preferences over some set of goods and services.

    V

    Vice product

    A product that is often bought impulsively, even though consumers consider theproducts to be unhealthy and experience regret after the purchase. Opposite: Virtue

    product.

    Visceral factor

    A wide range of negative emotions (anger, fear), drive states (hunger, thirst, sexual

    desire) and feeling states (pain) that grab people's attention and motivate them to en-

    gage in specific behaviors. Unlike preferences they can change desire rapidly because

    they are affected by changing internal bodily states and external stimuli. Can be mod-

    eled as 'state-dependent preferences' motivating people to engage in specific behav-

    iors through the combined application of carrots and sticks.

    Visceral regulator

    Visual illusions

    Characterized by visually perceived images that differ from objective reality. The in-

    formation gathered by the eye is processed in the brain to give a perception that does

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    not tally with a physical measurement of the stimulus source.

    W

    What-the-Hell effect

    Its the point where people switch from cheating just a bit to cheating a lot.

    X

    Y

    Yerkes-Dodson Curve

    'Law' proposed by Yerkes and Dodson, which posits that there is an optimal level of

    arousal for executing tasks, and that departures from this level in either direction

    lead to a decrement in performance.

    Z

    http://en.wikipedia.org/wiki/Yerkes%E2%80%93Dodson_lawhttp://danariely.com/2013/03/19/the-what-the-hell-effect/