Behavioural economics Flashcards
What is internal validity?
Internal validity is when the results of the experiment are consistent with theory in the controlled environment.
What is external Validity?
External validity is the degree to which the results of the experiment hold up against real-world applications
What extent do lab experiments have different levels of both?
Lab experiments usually have higher levels of internal validity due to the controlled nature of the experiment and conditions, but have lower levels of external validity
What are Lab experiments?
Lab experiments are tests conducted in artificially constructed settings that allow for a high level of control over the environment
What are Natural experiments?
Natural experiments are when experimental settings arise naturally and allow researchers to analyse natural results
What are Field experiments?
Field experiments are when experiments are conducted in the real world where there is some small level of control over the environment
What have newer BE theories tried to achieve?
Newer BE theories have attempted to utilise the rigor and usefulness of traditional modelling whilst incorporating a higher level of psychological realism driven by real world experimental results.
What are some traditional assumptions about agents?
- Agents have well defined and stable preferences over final outcomes
- Agents discount future payoffs exponentially
- They update and process information in a Bayesian manner
- They maximise their own expected utility
What are some useful scientific features of traditional models?
There are however some useful features of traditional models, which include:
- Mathematical formalisation and proof
- Formation of hypothesis
- Rigorous testing
What does modern BE want to incorporate and for what purpose?
Behavioural economics wants to incorporate insights from modern experimental evidence and modern psychology to add a level of realism to hypotheses
What are problems with the standard model?
- A lack of incorporation of real-world test results
- Too much simplicity
How can we narrow down the alternative models?
- Only consider new models that have sufficiently systematic and rigorous supporting evidence
- Where possible we should look for models that incorporate different phenomena
Fairness – what do experiments give us strong evidence of regarding payoffs of others?
Experiments give us strong evidence that some agents take into account the fairness of their giving amount to others
What are some real-world examples of fairness phenomena?
- Tipping in restaurants
- Charitable boxes
- Honesty boxes
- Pick your own price products
What do new generation models modify and keep the same?
New generation models modify the assumptions in order to incorporate the results of theory applications, whilst keeping the practical model the same.
