Behavioural Economics Flashcards
Does B.E reject Traditional Approach such as Utility Max. and Equilibrium etc.?
NO - B.E recognises that Behaviour Deviates in Systematic + Predictable ways
What are the 3 Criteria to judge Econ. Theories?
- Congruence w/ Reality
- Generality
- Tractability
B.E greatly improves 1. but worsens 3.
Does B.E give more precise Predictions + Equilibria?
YES
e.g. can rule out some N.E w/ Realistic Assumptions
What is the Methodology of B.E?
- Identify Anomalies + clear Violations of an existing model
- Use Anomalies –> Create Alternative Theories (Generalise existing models)
What are 3 methods to Identify Anomalies?
Lab Experiments
Field Experiments
Process Measures - Combine Lab + Field results w/ Brain Scans + other data – Provide model of decision-making process
What are the Assumptions of Standard Econ. Model?
- Agents are Rational - Complete + Transitive
- Agents are Bayesian Prob. Operators + Updaters
- Agents Max. Utility
- Consistent Time Preferences
- Utility governed by Pure Self-Interest
What do you call an Agent who satisfies all Standard Econ. Model Assumptions?
Homoeconomicus
What does B.E say about Standard Model?
People are NOT always Rational - Preferences are NOT always Transitive