Irrational behaviour

In economics we often assume that individuals are rational, but this is not always the case. Irrational agents make decisions that don't maximise utility.

Irrationality can lead to market failure, loss of welfare or individual consequences like addiction.

Types of irrational behaviour

Cognitive Bias

A mistake in reasoning or in some other mental thought occurring as a result of using rules of thumb or holding onto one's preferences and beliefs, regardless of contrary information.

Rule of thumb - A rough and practical method that can be easily applied when making decisions

Herding effect

Following other peoples behaviour because you assume it is correct

Sunk cost fallacy

Continuing to invest in something because you have already invested / lost in it.

Discrimination

Disliking people for irrational reasons