lecture 6 part 2 Flashcards
why does sometimes , the classical economic model of behavior might be too extreme’
too rational → people occasionaly make mistakes and those mistakes are predictable
too selfish → people do not care only about themselves (or their family)
too willful → good intentions are not always aligned with our subsequet actions
what does behavioral economics do?
borrows insights from psychology to inform economic models of decisio making.
what does the conventual theory do?
argues that more options and informations is better, but ignores that there is a cost of making choices (cognitive costs)
Our preferences changes over time… What kind of changes that exists?
a short-term temporary→ could be due to changes in our physiological state or psychological state
long-term systematic changes→ could be due to own choices or independent of own choices
what is the projection bias?
projection of current wants/needs on your future self
There exists another souce of utility… Beliefs about outcome. What does that mean? give examples
Utility from beliefs can be a very powerful source of utility.
It can even effect physical outcome (Placebo outcome→ a treatment can help a patient merely because she believes it will)
anticipatory will →utility derived now from anticipationg the future7
What is a framing effect?
people affected by how choices are presented to them or framed.
theres positive or negative framing
What is loss aversion?
losses are given more importance than gains of similar size. its the basic idea of Kahneman (Nobel 2002) and Tversky’s Prospect Theory
what is the behavioral “solution”?
reference-dependent preferences→ instead of a utility function defined over final outcomes, utitlity defined over changes in outcomes (it defines the utility function relative to a reference point.)
what is behavioral economics?
work of bulding ans testing models that incorporate both the standar model’s prediction and the systematic observed deviations from it
