Behavioural biases influence decision-making by causing individuals to rely on shortcuts, emotions, and flawed judgments rather than careful reasoning. While traditional economic theory assumes people act rationally to maximize their wellbeing, behavioural economics shows that humans consistently make predictable mistakes. These biases shape how consumers evaluate choices, respond to prices, judge risks, and form preferences.
One major bias is anchoring. People rely heavily on the first piece of information they encounter—such as an initial price—when making decisions. Even if the anchor is arbitrary, it influences what consumers believe is “reasonable.” For example, a high original price makes a discount seem more attractive, even if the final price remains above market value.
Another common bias is loss aversion, the tendency to fear losses more than we value equivalent gains. This causes people to avoid risks, delay decisions, or stick with inferior choices simply to avoid the possibility of losing. Loss aversion explains behaviours like refusing to sell a declining investment or overpaying for insurance.
The availability bias influences decisions based on how easily examples come to mind. If someone recently heard about a plane accident, they may overestimate the risk of flying. This bias leads consumers to misjudge probabilities and make choices that do not reflect actual risks.
People also fall into the confirmation bias, where they look for information that supports their existing beliefs while ignoring contradictory evidence. This can lead consumers to stick with familiar brands or reject new alternatives even if they are objectively better.
Another powerful bias is framing. How information is presented affects choices. For example, consumers are more likely to choose a product labeled “95% fat-free” rather than “contains 5% fat,” even though the meaning is identical. Framing influences everything from health decisions to financial investments.
Present bias and impulsivity also affect decision-making. People tend to prioritize immediate rewards over long-term benefits, even when the long-term choice provides greater utility. This bias explains impulse purchases, procrastination, and difficulty saving money.
Finally, social influence shapes decisions in subtle ways. People follow trends, imitate peers, and respond to social norms. Choices are often motivated not purely by personal benefit but by the desire to fit in or avoid social disapproval.
In summary, behavioural biases influence decision-making through anchoring, loss aversion, framing, availability, confirmation bias, impulsivity, and social pressures—leading to predictable departures from rational behaviour.
FAQ
1. Are behavioural biases always harmful?
Not always. Biases sometimes provide quick decision shortcuts, but they can also lead to systematic errors that reduce wellbeing.
2. Can people learn to reduce their biases?
Yes. Awareness, better information, and decision tools can help individuals make more rational, thoughtful choices.
3. Why does behavioural economics matter?
Because it reflects how people actually behave, helping businesses, policymakers, and consumers make better decisions.
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