Behavioral economics challenges the assumption of perfect rationality and instead assumes that individuals have limited cognitive abilities and make decisions based on heuristics and biases.

The endowment effect is a cognitive bias that leads individuals to place a higher value on items they already own compared to items they do not own.

A nudge is a policy intervention that seeks to influence individual behavior in a predictable way without restricting their choices or using coercion. A default option for organ donation is an example of a nudge because it makes it more likely that individuals will become organ donors without forcing them to do so.

Prospect theory is a behavioral economics theory that describes how individuals make decisions under risk. It suggests that individuals are more likely to take risks when they are presented with a series of gains compared to a series of losses.

A default option for energy-efficient appliances is an example of a policy that is informed by behavioral economics because it seeks to influence individual behavior in a predictable way without restricting their choices or using coercion.

Confirmation bias is a cognitive bias that leads individuals to seek out information that is consistent with their existing beliefs and to ignore information that is inconsistent with their beliefs.

A commitment device is a policy that helps individuals to overcome the problem of time inconsistency by making it more difficult for them to change their behavior in the future.

Present bias is a cognitive bias that leads individuals to place a higher value on immediate rewards compared to future rewards.

A commitment device is a policy that helps individuals to overcome the problem of present bias by making it more difficult for them to change their behavior in the future.

The paradox of choice is a cognitive bias that suggests that individuals are more likely to make a decision when they are presented with a smaller number of options.

A default option is a policy that helps individuals to overcome the problem of choice overload by making it more likely that they will choose a particular option without having to actively make a decision.

The framing effect is a cognitive bias that suggests that individuals are more likely to make a decision when they are presented with information that is framed in a positive way.

A nudge is a policy that seeks to influence individual behavior in a predictable way without restricting their choices or using coercion. Nudges can be used to address the problem of framing effects by presenting information in a way that is less likely to lead to biased decision-making.

The availability heuristic is a cognitive bias that suggests that individuals are more likely to make a decision when they are presented with information that is presented in a vivid and concrete way.

A nudge is a policy that seeks to influence individual behavior in a predictable way without restricting their choices or using coercion. Nudges can be used to address the problem of availability heuristics by presenting information in a way that is less likely to lead to biased decision-making.