3. The List Flashcards
What was Thaler’s early list?
Examples of behaviors that are inconsistent with traditional economic theory
What does this example violate in terms of economic theory?
You pay for tickets to a game but the day of the game there’s a terrible storm. You brave the storm to go to the game because you pay for the tickets.
You are ignoring the economic dictum to “ignore sunk costs”
The price you pay should not affect your choice about whether to go to the game.
What economic theory does this example violate?
You saved $10 by mowing the lawn but you get extremely sick from hayfever when you do it. If asked if you would mow another person‘s long for $20 you say of course not.
This violates the precept that buying and selling price it should be about the same
What economic idea does this example violate?
You would drive 10 miles to save $10 on a cheap item but you would not drive 10 miles to save $10 on an expensive one
You’re not valuing time consistently
What economic idea does this violate?
You’re fine with your wife buying expensive gift even though you pull all your resources. You would have not bought the sweater on your own
You feel better about spending money if someone else makes the decision though the sweater was no cheaper
What economic idea does this violate?
Can you put a bowl of cashews out for everyone to eat before dinner. But you take it away because you don’t want to ruin your appetite.
Removing the cashews takes away options to eat more. To Econ‘s more choices are always preferred to fewer
Hindsight bias
The idea that after the fact we think we always knew the outcome was going to be
What is the basic thesis of the paper by Tversky and Kahneman titled “ judgment under uncertainty: heuristics and biases”
That humans have limited time and brain power.
As a result they use simple rules of thumb called heuristics to help them make judgments.
These hueristics cause people to make predictable errors which are biases.
Availability hueristic
In guessing how frequent something is, we tend to ask ourselves how often we can think of insists of that time
Who was the forerunner of Kahneman and Tversky who was well known in almost every field of social science and came up with the term bounded nationality?
Herbert Simon
Bounded rationality
The lack of cognitive ability to solve complex problems
What does it mean for errors to be random?
That the model’s predictions are too high or too low with equal frequency. The errors cancel each other out.
What did continent and Tversky have to say about errors?
They said that they were actually not random but in fact predictable. And that there are patterns in how people are wrong. For example people believe that gun deaths are caused more by homicide and suicide. More people think it’s homicide. These errors will not average out to zero.
What did the items on the Thaler’s list end up being?
Examples of systematic biases
