Behavioral Economics Vocabulary

decision-making limited by information, time, and cognitive capacity

“Bounded rationality explains satisficing behavior.”

Origin: From bounded + rational (Latin rationalis `of reason`)

the tendency to prefer avoiding losses over acquiring gains

“Loss aversion makes people hold losing stocks too long.”

Origin: From loss + aversion (Latin aversio `turning away`)

over-relying on the first piece of information encountered

“The initial price serves as an anchor in negotiations.”

Origin: From anchor (Latin ancora), from Greek ankyra

valuing something more simply because you own it

“The endowment effect explains reluctance to sell at fair prices.”

Origin: From endow (Latin indotare `to provide with a dowry`) + effect

preferring smaller immediate rewards over larger later ones

“Hyperbolic discounting explains procrastination.”

Origin: From hyperbolic (Greek hyperbole `excess`) + discounting

different reactions to the same information based on presentation

“Describing meat as '90% fat-free' vs '10% fat' is a framing effect.”

Origin: From frame + effect

following the crowd rather than independent analysis

“Herd behavior amplifies market bubbles.”

Origin: From herd (Old English heord) + behavior

preference for the current state of affairs

“Status quo bias keeps people with suboptimal investments.”

Origin: Latin status quo `the state in which` + bias

treating money differently based on subjective categories

“Mental accounting explains why people splurge tax refunds.”

Origin: From mental + accounting

subtle policy changes that guide behavior without mandates

“Making organ donation opt-out is a nudge.”

Origin: Perhaps Scandinavian, meaning to push gently