Behavioral Economics Cheat Sheet

The core ideas of Behavioral Economics distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/behavioral-economics/cheatsheet

Quick Reference

Loss Aversion

People feel the pain of losses roughly twice as strongly as the pleasure of equivalent gains. This asymmetry leads to risk-averse behavior when facing potential gains but risk-seeking behavior when facing potential losses.

Anchoring Bias

The tendency to rely too heavily on the first piece of information encountered (the 'anchor') when making decisions, even when the anchor is arbitrary or irrelevant.

Prospect Theory

A theory developed by Kahneman and Tversky describing how people evaluate potential gains and losses relative to a reference point rather than in absolute terms, and how they weight probabilities nonlinearly.

Nudge Theory

The concept that indirect suggestions and positive reinforcement can influence behavior and decision-making more effectively than direct instruction, mandates, or enforcement.

Status Quo Bias

The preference for the current state of affairs, where any change from the baseline is perceived as a loss. People tend to stick with default options even when better alternatives exist.

Availability Heuristic

The tendency to judge the likelihood of events based on how easily examples come to mind, leading to overestimation of dramatic or recent events.

Framing Effect

The way information is presented (framed) significantly affects decisions and judgments. The same information can lead to different conclusions depending on how it's framed.

Endowment Effect

People ascribe more value to things merely because they own them. This leads to a gap between the price people are willing to pay for a good and the price at which they're willing to sell it.

Hyperbolic Discounting

The tendency to prefer smaller, sooner rewards over larger, later rewards, with the preference increasing as the delay becomes more immediate.

Sunk Cost Fallacy

The tendency to continue investing in something because of previously invested resources (time, money, effort) rather than evaluating the current and future value.

Key Terms at a Glance

Anchoring:A cognitive bias where initial exposure to a number or value influences subsequent judgments.

Behavioral Economics:A field combining psychology and economics to study how cognitive biases affect economic decision-making.

Bounded Rationality:The concept that rationality is limited by available information, cognitive capacity, and time.

Choice Architecture:The design of different ways in which choices can be presented to consumers.

Cognitive Bias:A systematic pattern of deviation from norm or rationality in judgment.

Confirmation Bias:The tendency to favor information that confirms pre-existing beliefs.

Default Effect:The tendency for people to accept the pre-set course of action.

Disposition Effect:Selling winners too early and holding losers too long in investment decisions.

Endowment Effect:Valuing owned items more highly than equivalent items not owned.

Framing Effect:Reacting to choices differently depending on how they are presented.

Herd Behavior:The tendency to mimic the actions of a larger group.

Heuristic:A mental shortcut that allows quick decision-making but can lead to systematic errors.

Hyperbolic Discounting:The tendency to prefer smaller, immediate rewards over larger, delayed ones.

Loss Aversion:The tendency to prefer avoiding losses over acquiring equivalent gains.

Mental Accounting:Treating money differently depending on its source or intended use.

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