HOW TO APPLY BEHAVIOURAL ECONOMICS TO YOUR DAILY LIFE
- Economics is really all about making choices and decisions.
- A cost-benefit analysis is something altogether more sophisticated, which allows you to be more objective.
- present bias – people have a tendency to overvalue immediate rewards over long-term payoffs
- A fallacy is an idea that is often believed to be true, but which is, in fact, false.
- The sunk-cost fallacy is the idea that because you have already invested time or money in something, you should persist with it no matter what.
- law of diminishing returns – after a certain point, investing more money (or effort) does not lead to increased benefits, and, notwithstanding the objective risk, may even have an adverse impact
- according to economists, there’s no such thing as a free lunch.
LESSON 4A READING AND VOCABULARY
- cancel out – outweigh
- dispassionate – objective
- bear in mind – take into account
- propensity – tendency
- pitfall – trap
- persevere – persist
- notion – concept
- detrimental – adverse
Advice from the article
- Comfortable though we may be with making a list of pros and cons, we should recognise that it is actually a rather ineffective tool.
- Give each of these a score out of five, and then weigh them up against the potential benefits, scored in the same way, and the choice becomes much easier.
- This principle might seem obvious, but it is really a reminder that doing your best is good enough.
- if you aren’t paying for a product, you ARE the product.