Last updated: April 2026 Price elasticity of demand (PED) measures how much the quantity demanded of a good changes — in percent — when its price changes by 1%. The formula is PED = (% change in quantity) ÷ (% change in price). A value below −1 means demand is elastic (smartphones, restaurant meals); between … Read more
Last updated: April 2026 The anchoring effect is a cognitive bias where the first number you encounter distorts every judgment that follows, even when that number is obviously random. Discovered by Tversky and Kahneman in 1974, it inflates salary offers, real-estate prices, legal sentences — and, as 2025 research confirms, the outputs of large language … Read more
Last updated: April 2026 Nudge theory is a behavioral economics framework introduced by Richard Thaler and Cass Sunstein in 2008. It claims that small changes to choice architecture — the way options are presented — can predictably steer decisions without banning anything or changing economic incentives. Default enrollment, calorie labels and organ-donor opt-out systems are … Read more
Last updated: April 2026 Cognitive biases are systematic, predictable errors in human judgment that arise from mental shortcuts called heuristics. First mapped by psychologists Daniel Kahneman and Amos Tversky in the 1970s, researchers have since cataloged over 180 distinct biases affecting memory, perception, and decision-making. Understanding these biases is critical not only for personal choices … Read more
Last updated: March 2026 Prospect theory, developed by Daniel Kahneman and Amos Tversky in 1979, explains why losing $100 hurts roughly twice as much as gaining $100 feels good. The theory describes three core mechanisms that drive irrational decisions: reference-dependent evaluation (gains and losses measured from a starting point, not absolute wealth), loss aversion (losses … Read more