Lecture 13: doing economic psychology

Question 1

preference reversal

Answer 1

people prefer different things based on means of measure
study with a probability bet or a dollar bet.
- people choose the Pbet more often, but when asked how much they are willing to pay they offer more for the dollar bet.

P-bet is with high probability, $-bet is with high amount of money

Question 1

Sarah Lichtenstein and Paul Slovic

Answer 1

the first people to write an article about different ways to rate utility in the utility theory
- choosing
- having people say how much they are willing to pay
- rate attractiveness.

utility theory says you should get the same outcome no matter how you measure it.

Question 2

David Grether and Charles Plott

Answer 2

economists that wrote an article trying to discredit the work of the pbet studies. they had theories about why preference reversal wasn’t true
- used unsophisticated subjects (psychology students, but were not sure)
- experminters were psychologists and subjects would think they were being decieved (but there was no decieving in the study)

their replication showed the same results

Question 3

economists comments on psychological work

as specified by Thaler

Answer 3

• if the stakes are large enough people will get it right
• in the real world people will learn to get it richt
• in the aggregate errors will cancel out
• in markets, arbitrage and competition will eliminate the effects of irrational agents
• where is the theory?
• economic theory has done well so far and if it is not broken why fix it?

Question 4

thalers two false statements

Answer 4

• rational models are useless
• all behavior is rational

the truth is somewhere in the middle

Question 5

George Lowenstein

Answer 5

• experimental economy doesn’t care about external validity. they strip context, but that is what drives our decisions.
• repetition: the idea that we make the same decision everyday, but there is no transfer of learning
• there is no methodology course in most economic studies

so there is no external or internal validity

behavioral economist

in commentary article on experimental economy

Question 6

decieving and incentives in psychology

Answer 6

psychologists use more deception, because
- they want to study behavior in the context and deception has the goal to make the experiment like everyday life
- incentives are used by economics to make the experiments like everyday life, so they are the same, but psychologists study non-monetary incentives and therefore use deception.

Question 7

Colin Camere

Answer 7

article about where economists and psychologists drifted apart
- mathemathical
- experimental

psychologists focus on behavior and not assumptions (f-twist)

Question 8

kahneman; things that surprised him in economic theory with a psychological perspective

Answer 8

• assumption of selfishness: so much evidence we aren’t selfish
• no getting away from the rational model
• unchanging tastes and the carrier of utility

pessimistic about the future of closing the gap, because the strong interest in the rational model.

Question 9

Toolbox of behavioral change

Answer 9

• regulation: bans and restriction: often not thought out carefully and needs to benefit majority
• incentives: taxes, fines, grants; powerfull, but little known about these
• information, education and persuasion; oftesn doesn’t work
• nudges and choice architecture: influencing behavior

Question 10

what determines what tool you can use

Answer 10

• is enforcement feasible and cost effective
• is freedom of choice important
• what is the possible response from the market
• what are the potential outcomes of the policy