Mid Semester Flashcards

Question

What is a sophisticated hyperbolic discounter?

Answer 1

Aware of their changing preferences in the future and perfectly anticipated their future behaviour and so plans while taking this into account. Aware of usefulness of commitment devices

Answer 2

realises that if she delays now, she will delay again later and only complete the task when it is very costly. Hence, her real choices are to undertake the task now of much later, which raises the current cost od delay. Hence, she performs the task earlier than a naive

Answer 3

Know that they do not have the patience to wait for long enough to get the highest reward and will end up giving up earlier

Answer 4

Naive thinks that they will hit today but never again as they in future periods, the cost of hitting outweighs the benefits. However, upon reaching the decision, the costs are heavily discounted so they make the same decision. Sophisticated: recognises that they will continue to hit but because they make the decision when most impatient and because optimal behaviour today does not depend on what the person did in another period.

Answer 5

When b > Bc | But earlier selves only prefer when b > c

Answer 6

- Revenue neutral - Optimal tax rate = (1 - B) harm - Provides self control for those who are too impatient to provide it for themselves

Answer 7

Exponential discounters are dynamically consistent and always consume the preferred amount - they are harmed by the tax despite acting optimally (provided no externalities) Tax rate is often very high

Answer 8

Market often has an incentive to break consumers' self control and take advantage of short run impatience (bing gives solutions but also the problem) Self control can be easier with price changes but with competition, there is an incentive to undercut.

Answer 9

Policy that helps those with sub-optimal behaviour without significantly hurting those who are behaving optimally

Answer 10

Contributions begin after delay (combat short run impatience) and after pay rise (combat loss aversion). The plan was voluntary and it was easy to switch out

Answer 11

1) what gives a person utility at a particular moment 2) how they intergrate or trade off those utility concurring at different times 3) what they predict about future utility

Answer 12

utility derived now from anticipating the future. Implications for timing of events with an optimal delay for positive events (time to savour) and incentive to get unpleasant event over with (or delay indefinitely)

Answer 13

Strength of anticipatory feelings is partly dependent on situational factors. For example, people filling out forms when having to wait for lollies displayed more impatience for other things

Answer 14

Possessing information affects people's utility so people tend to avoid information that would make them upset (e.g. people are less likely to find out the results of health tests if they think it may be negative)

Answer 15

If not finding out first period au + probability good + p bad ``` If does than p = probability that news is good p f(1) + (1-p)f(0) < f(p) ``` Being overoptimistic increases utility, which is what data shows

Answer 16

utility derived from beliefs about one's own traits and abilities without regard to a specific event. Tend to be biased about traits that are important to us

Answer 17

- objective feedback (ambiguous can make worse) - expertise increases bias - feeling control makes worse

Answer 18

People are loss averse Most people fall behind their reference point during the day and are more willing to take risks to have a shot at regaining ground against their reference point (also diminishing sensitivity)

Answer 19

Dynamic Inconsistency People tend to think they will stick to their plans and goals of being healthy but can't resist the immediate gratification of unhealthy choices.

Answer 20

Endownment effect The price non-owners are willing to pay for the mug tends to be much lower than the amount sellers are willing to accept as having the mug means it will feel like a loss. When trading is available, way less people utilise this than neoclassical theory would suggest

Answer 21

More sensitive t gaining the first $500 than to the potential of gaining the second and averse to losing the first. More sensitive to losing the first $500 than the additional $500 and are willing to risk the 2nd to avoid the loss

Answer 22

Reference dependence Have a daily income target that is met quicker when wage rates are higher and so can leave early as staying longer is not worth as much

Answer 23

1) sticky: often unchanged for months 2) Focal: competitors often charge identical prices for competing but not identical products 3) Uniform retailers selling multiple products (like theaters) sell for the same price Lesson: loss aversion can create price equilisation across both time and products (increasing means consumers feel a loss and may switch while lowering won't add as much demand)

Answer 24

Captures loss aversion (2 if negative but 1 if positive) but does not capture diminishing snesitivity

Answer 25

Reference is interpreted as the status quo (have no not have the product). A generalisation is that lagged consumption or endowment is the reference point. reference = (1 - y)r + y c - 1 Incorporates adaptations with changes having large effect initially but fading in influence as the point adjusts

Answer 26

People can fall short of aspirations, which effects happiness. They can fall behind ideal self (dejection) or out-self (agitation)

Answer 27

People compare their outcomes to others around them. This explains the Easterlin Paradox wherein controlling for factors such as income and hours, happiness increases with income withing but not between countries (and not over time)

Answer 28

Combines the lagged consumption / endowment and goals theories. The reference for outcome sis recent expectations about these outcomes, including your reasonable goals. Factors include: - status quo expectation of recent prices - market prices - reasonable goals - attachment effect (only have endowment effect f you expect to keep it)

Answer 29

Tendency for people to stick with the option they have been automatically assigned to. Explained by naive hyperbolic discounting as it predicts procrastination