Anchoring Effect: The tendency for an initial piece of information (the “anchor”) — even when arbitrary or irrelevant — to disproportionately influence subsequent numerical judgments and estimates, with people insufficiently adjusting away from that starting point.
Asymmetric Dominance Effect: A phenomenon in which adding a third option to a choice set — one that is inferior to a target option on every attribute, but only partially inferior to a competing option — increases the probability that the target option is chosen, even though nothing about the target or competitor changed. Also known as Decoy Effect.
Behavioral Economics: Refers to an approach to understanding decision making and behavior that integrates behavioral science with economic principles. It goes beyond the “Homo Economicus” or the “Rational Man” that economic studies require for their theories
Bias: Refers to deviations due to misconceptions or prejudiced views from the rational choice
Halo effect: Refers to a term created by Edward Thorndike and is the tendency for positive impressions of a person, company, country, brand, or product in one area to positively influence one’s opinion or feelings of a person, company, country, brand, or product in another area
Nudge: Refers to a concept in behavioral economics that subtly alters the environment or context in which people make decisions with the main goal of influencing their behavior. Most notable mention is the book of Thaler with the same title.
Ponzi scheme: Refers to an investment fraud that pays existing investors with funds collected from new investors. It is a type of a Pyramid scheme, in which the top part is funded by the bottom. If the flow for some reason stops, the pyramid is demolished and the investors lose their money. The term has taken its name from Charles Ponzi, who duped investors in the 1920s.
System 1: The reference was introduced by Kahneman in his book “Thinking, Fast and Slow” (2011). System 1 refers to the fast, automatic, intuitive mode of thinking that operates with little or no effort and no sense of voluntary control. It relies on heuristics, pattern recognition, and emotional response rather than deliberate reasoning, which makes it efficient but also prone to systematic biases.
System 2: The reference was introduced by Kahneman in his book “Thinking, Fast and Slow” (2011). System 2 refers to the slow, effortful, deliberate mode of thinking associated with conscious reasoning, logical analysis, and careful weighing of evidence.