Important keypoints from EDX Behavioural Economics course (BE101x) from University of Toronto.
In order to be perfectly rational, people should have:
Complete information about outcomes and it's probability, future events, observable and unobservable attributes, and relevant contextual factors needed to interpret and evaluate these data.
Emotions like regret, potential regret, guilt, sympathy etc could effect decision making.
The ability to calculate the utility of options on the fly, which requires the brain to perform tasks such transforming, multiplying, discounting, adding etc. When computation is contrained (which is always the case with humans anyway), their rationality are termed as "bounded rationality"
The axioms of choice: a. Completeness and continuity i. Completeness: For all X and Y, we have X ³ Y, or X £ Y, or indifference ii. Continuity:There exists some probability such that a gamble between the best and the worst outcome is as attractive as receiving a sure intermediate outcome. b. Transitivity For example, if a person prefers A over B, and B over C - then the person must prefer A over C. c. Substitution
Based on the above, we can see that humans rarely have the above traits and thus - most of the decisions being made can be considered - irrational.
In short, a decision point is any intervention that is designed to get an individual to ‘pause and think’ about the consumption they are currently engaged in. There are a number of ways in which decision points can be created, but there are three broad methods:
which work on the premise that requiring the individual to take a positive action makes them deliberate on the consumption decision
which work on the premise that drawing attention to a neglected activity can provide the impetus to get it done with
which work on the premise that the interruption allows the individual to pause and think
In many cases, these three basic methods can be combined to create powerful interventions of decision points.
More details here: https://piedpi.slack.com/files/ikanez/F0DSWAQN8/BE101x__Decision_Points
More reading here:
Definition: People value losses 2 times more than gain. As such, people are less likely to take risk when they might lose something rather than gain something of equal amount
Definition: Reduction in the strength of association between cost and benefit.