Behavioural Economics Content Flashcards
What is Behavioural Economics and how does it differ from Neoclassical Economics?
Behavioural Economics is a branch of economics that uses insights from psychology to explain human behaviour and interactions, acknowledging that humans often make non-optimal decisions due to cognitive biases. This deviates from Neoclassical Economics, which assumes humans are perfectly rational and always act to maximise their self-interest.
What are some examples of cognitive biases in Behavioural Economics?
Examples include optimism and overconfidence, the False Consensus Effect, and the Curse of Knowledge, all of which can lead to unrealistic expectations, inaccurate forecasts, and difficulty understanding others’ perspectives.
How does Behavioural Economics explain the concept of Bounded Rationality?
Bounded Rationality refers to the idea that humans are not always perfectly rational due to limitations in knowledge, information processing, and computational capacities, leading to “satisficing” behaviour where decisions are merely satisfactory rather than optimal.
What is an example of Inconsistency Over Time in Behavioural Economics?
An example is the tendency for people to heavily discount future events compared to present ones, leading to issues like inadequate retirement savings.
How do social dimensions influence human behaviour according to Behavioural Economics?
Social forces such as trust, fairness, reciprocity, social norms, and commitment significantly influence human behaviour, shaping our decisions and leading to phenomena like market bubbles through herd behaviour.
What are Economic Experiments and why are they important?
Economic Experiments are tools used in research to gain insight into cause-and-effect relationships and to prove or disprove hypotheses, using data generated under controlled conditions.
What is Selection Bias and how do experiments address it?
Selection Bias is a misleading comparison due to varying attributes between participants and non-participants in an experiment. Random assignment of participants into treatment and control groups in experiments helps address this bias.
What is the difference between Field Experiments and Lab Experiments?
Field Experiments are conducted in real-world settings with real interventions, while Lab Experiments are conducted in controlled environments with assigned tasks.
What are the benefits of Lab Experiments?
Lab Experiments provide full control over the experimental environment and variables, allow abstraction from complexities of field data, and are cost-effective and replicable.
What is Game Theory and what are some key concepts in it?
Game theory is a study of strategic decision-making in situations where the outcome depends on the decisions of multiple players.
Key concepts in game theory include:
Payoffs: The rewards or losses that players receive as a result of their decisions.
Strategies: The set of actions that a player can take in a game.
Equilibrium: A situation in which no player can improve their payoff by changing their strategy, given the strategies of the other players.
Game theory has been used to analyze a wide variety of real-world situations, including:
Game theory can be used to:
Model how businesses, people and countries compete with each other for customers, market share in situations such as cooperation and conflict.
It can be used to predict how players will behave in different situations, and to design strategies that will lead to the best possible outcome for a given player.
What are Public Goods Games and why are they important?
A game in which players must decide how much to contribute to a common good.
The more players contribute, the greater the good, but each player benefits from the good regardless of how much they contribute.
This creates a dilemma, as players have an incentive to free-ride on the contributions of others.
Public goods games are used to study cooperation and altruism, and to understand how people make decisions in situations where there are shared resources.
Why are public goods games important?
Help us understand how people make decisions in situations where there are shared resources = important because many of the problems we face in the world today, such as climate change and environmental degradation, involve shared resources.
By understanding how people make decisions in public goods games, we can develop better strategies for addressing these problems.
What is a Social Dilemma?
A Social Dilemma is a situation where an individual’s optimal behaviour contrasts with the optimal outcome for the group.
What role does cooperation play in Social Dilemmas?
Cooperation engenders collective rationality and group optimization, despite individual incentives for free-riding or defection.
What is the design and analytical framework of a Public Goods Game?
A Public Goods Game is a game in which players have to decide how much to contribute to a common good.
The amount contributed by each player is multiplied by a factor and then shared equally among all players.
The analytical framework of a Public Goods Game is based of Nash equilibrium, which is the point at which no player can improve their payoff by changing their strategy.
Nash equilibrium is for each player to contribute nothing. However, if all players contribute nothing, the common good will not be provided and everyone will be worse off.
Useful tool for understanding the challenges of cooperation and collective action. It can be used to study a wide range of real-world phenomena, such as environmental protection, economic development, and political participation.
How does communication impact Social Dilemmas?
Communication has a positive impact on social dilemmas. It can help to increase cooperation, build trust, and reduce conflict. Communication can also help to clarify the rules of the dilemma and the consequences of different choices. In some cases, communication can even lead to the development of new solutions to the dilemma.
What is the confusion effect in Public Goods Games?
The confusion effect is the tendency of people to contribute more to public goods than they would if they fully understood the game’s incentives. This can happen for a variety of reasons, such as a misunderstanding of the rules, a lack of attention, or simply being overwhelmed by the complexity of the game. The confusion effect can lead to a significant overestimate of the amount of cooperation that is possible in public goods games.
How does pro-social behaviour relate to self- and other-signalling?
Pro-social behavior is related to self- and other-signaling in a number of ways. For example, people may engage in pro-social behavior in order to signal their positive qualities to others, such as their kindness, generosity, or compassion. Additionally, people may engage in pro-social behavior in order to improve their own self-image, such as by feeling good about themselves or by making themselves feel like they are making a difference in the world.
How does adherence to social norms influence behaviour?
People are more likely to conform to the norms of their group, even if they do not agree with them, in order to be accepted and avoid social exclusion.
Social norms can influence behavior by providing information about what is considered appropriate or acceptable in a given situation. This can be helpful in guiding behavior, but it can also lead to people engaging in harmful or risky behaviors simply because they believe that it is what is expected of them.
What is the relationship between norm sensitivity and pro-sociality?
Norm sensitivity is a key factor in pro-sociality. People who are more sensitive to social norms are more likely to engage in prosocial behavior, such as donating to charity or volunteering their time. This is because they are more aware of the expectations of others and want to conform to those expectations.
People who are more sensitive to social norms are more likely to feel empathy for others and want to help them.
In short, norm sensitivity is a key factor in prosociality because it motivates people to act in ways that are beneficial to others.
How do moral motives, trust attitudes, reciprocity, and rule-following behaviour relate to contributions in Public Goods Games?
Moral motives, trust attitudes, reciprocity, and rule-following behavior are all factors that can influence contributions in public goods games.
Moral motives can lead people to contribute to the public good because they believe it is the right thing to do. Trust attitudes can lead people to contribute because they believe that others will also contribute. Reciprocity can lead people to contribute because they want to be repaid for their contributions. Rule-following behavior can lead people to contribute because they believe it is their duty to do so.
The relative importance of these factors will vary from person to person. However, they all have the potential to influence contributions in public goods games.
What is the role of punishment in promoting cooperation?
Punishment encourages individuals to cooperate by imposing costs on those who don’t cooperate (free riders). It can be either informal, like social disapproval, or formal, like legal sanctions.
What was the primary finding of Fehr and Gächter’s study introduced in the Public Good Game (AER, 2000)?
Fehr and Gächter found that co-operators are willing to punish free riders even at a cost to themselves and without expecting future benefits. The free riders were more likely to cooperate when there were opportunities for punishment.
How was the experiment designed in the Public Good Game study by Fehr and Gächter?
The experiment had four treatments: Stranger with punishment, Stranger without punishment (Control), Partner with punishment, and Partner without punishment (Control). Each treatment was repeated 10 times with different group compositions. A within-subject design allowed for comparisons of cooperation levels.
How were payoffs and punishments determined in the Public Good Game study?
Payoffs without punishment were determined by the contribution to the public good. Punishment was introduced as a second stage, with subjects given the opportunity to simultaneously punish each other after contributions were made. Payoffs with punishment were determined by the reduction in payoffs from punishment points and the cost of punishment.
