6. The Gauntlet Flashcards
The two central concept of economics are what?
That agents optimize and
markets reach stable equilibrium
Review the ideas of marginal analysis and equating at the margin on page 44
Economist are not really interested in what people ______ they are doing.
Economic theory doesn’t require that firms/people actually do you what the theory posits. All that matters is that their actions match what the theory predicts
Say
Who was the economist that wrote “the methodology of positive economics” and said that all that mattered was that a theory was accurate and inspections question
Milton Friedman
What was Thaler’s response to how Milton Friedman thought about Theory
That economics is supposed to be a theory of everyone not just experts
What did the psychologists Lichtenstein and Slovic discover in their experiments?
Preference reversals, where subjects were induced to say they prefer choice A to choice B, but then that they also preferred B to A
With regards to preferences, what is a theoretical foundation that is essential to any formal economic theory?
That people operate on well-defined preferences
According to economic theory, if we don’t have well-defined or stable preferences then what would happen?
Nothing would be optimized
What was one criticism of Kahneman and Tversky’s experiments?
That they were one shot games, that in the real world people would have opportunities to learn
According to psychologist what are the two ingredients necessary for Learning?
Frequent practice and immediate feedback
Because Learning takes practice, we are more likely to get things right at _____ stakes than at _____ stakes 
Small (frequent)
Large (infrequent)
There is a big argument that markets somehow ____ people who are missed behaving.
Thaler says that ______ Is a must in these kind of situations because there’s no logical way to arrive at a conclusion that markets _____ people into rational
Discipline
Hand waving
Transform
What is the theory of the psychology of spending, saving and other household financial behavior that Thaler explored?
Mental accounting
The idea of choosing between now and later was the other topic of exploration of Thaler’s. What did he call this?
Self-control
