Minor - Week 3 Flashcards
game
Situation where participants payoff depend also on their rivals decision
Strategic interaction
Optimal decisions will depend on the other in the game
- Sequentiel; other goes first
- simultanious; together not knowing other will do
Dominant strategies
Strategy if, no matter what the other player does it generates the highest pay off
- Best response for the player no matter others choose
- Be aware no interaction
- Dominant strategy always choose this one, rational
Dominated strategy
Worse strategy
A strategy is dominated if there is another strategy that always gives a better outcome, no matter what the other player does.
- There is another strategy
- Rational player never choose this
Nash equilibrium
I’m doing the best I can given what you are doing. You’re doing the best you can given what I am doing
- Interaction
Prisoners dilemma
- Risk of remain silent is to high (40 years)
- Both suspects rational, choose to minimalize sentance
- Can’t speak to each other
- Dominant strategy is confess, because you have 0 years then
Be aware prisoner dilemma and other games
- Less is better with prisoners dilemma
- Otherwise highest payout
control mechanism nash eq
Try to shift the payment to see if there is another higher outcome
Sequential decisions
- Work from last decision backwards towards first decision
- Dictator game and ultimatum game
Ultimatum game
2 players
- 1 get 10
- Has to make an offer to player two
- Reject or accept
Question ultimatum game
What would player 2 accept
- All offers above 0
- 0 he is different between accepting and not accepting
Dictator game
Player 1 can offer money
player 2 nothing to say
- Best offer to player 2 –> nothing
Reasons why not given low amount of money even if this was the most rational option?
Fairness; People care about outcome relative to others
Reciprocity; people seem to desire reciprocity (other does good or bad to me than i want to do the same)
Negative response by lower offers, fear of rejection, increase offer
Characteristics of goods
Excludeable
Rival in consumption
Excludable
Person can be prevented form using it
: ice cream cones, wireless internet access
: FM radio signals, national defense
Rival in consumption
Onced use there is less for others
Rival: ice cream cones
Not rival: an MP3 file of a popular song
Four different kinds of goods
Private goods
public goods
common resources
natural monopolies
private goods
excludable, rival in consumption
VB; food
Public goods
not excludable, not rival
- National defence
common resources
rival but not excludable
- Fish
Natural monopolies
excludable but not rival
vb; cable tv
Externalities which goods
- Common resources
- Public goods
Something of value no price attached, can lead to not efficiënt use. Lead to overuse or underuse which harms society
- Use policy to correct market failures
Public goods and problem
Free rider problem
- Firms are not willing, everyone use but no payment
- Goods not provided: good is not produced, even if buyers collectively value
the good higher than the cost of providing it.
- Government intervention needed
Free rider
Peron who recieves the benefits of a good but avoids paying for it
Health as a good
- Rival; you posesses it not anyone alse
- Exclusive; yes others may not benefit from your good health (productivity)
Health is not a public good but a private good
Healthcare as a good
- Excludable; Yes, not paying
- Rival; yes treating you can not treat anyone else
Private good
common resources
Not excludable but rival
- Ocean fishing
Litte incentive to produce for firms
Cannot prevent freeriders
Rival in consumption; government need to step in and avoid overuse
Tragedy of commons
- Common resources more used than socially diserable
Tragedy due to externality
- People neglect this external costs, resulting in overuse of in this case land
Examples of common resources
- Clean air and water
- Congested roads
- Wildlife
- Virus free environment
Core policy use by common resources and public goods
ensuring collective action to facilitate production and acces to goods which are largely non-
excludable and non-rival in consumption
Public and common goods
public is under provision
common overuse
Pricing and quantity
- Lower prices increases consumption (quantity)
- Higher pays leads to more demand for labour and effort
Social norms sorts
Descriptive norms
Injunctive/ prescriptive norms
Descriptive norms
beliefs about what others actually do
- Commonly done
Injunctive norms
beliefs about others think we should do
- Socially acceptable
Which norm is more likely to affect behavior
Bicchieri & Xiao (2009) - Discriptive
Stok, de Ridder, de Vet & de Wit - Descriptive
What people actually do around is stronger incentive for behavior
Contradicting theather and law of demand
When something is free high quantity is expected
But social norms
Market norms and social norms
- Market norms; introduce cost benefit thinking with a budget, taking much more
- Social norms; drive behavior and norms when there is no price tag and taking less
pay enough or don’t pay at all
- Low payments for task (cost beneift thinking and effort reduces)
- Non- financial rewards also social norm thinking
Power of free
Without financial rewards we are more likely to base our decisions on social norms
Well-known in marketing, giving away something for free creates a feeling of
reciprocity (Cialdini, 1993)
Making something free
- Changes people preferences (even when there is a transaction to be made)
- Free does not mean an increase in quantuty
Meaningfull and meaningless jobs
- Payment but also meaningness added to work
- Less meaning less effort
Pay not the only thing driving more labour
IKEA effect
cognitive bias; a cognitive bias in which consumers place a disproportionately high value on products they partially create
- Working hard on something increases you appreciation
- Willingness to pay increases as you made it yourself
- Own labour leads to increased value up to pair with expert
Labour supply - rational perspective
Pay more employees work harder
More work requires more compensation
What explains IKEA effect
Cognitive dissonance
- justification of behavior; gap between actions and thoughts
- After actions you beliefs change
- IKEA; actions already must be nice
Completion; you succeed in your task you like it more
Homo economicus behavior does not only respond to price changes but also to:
- Social norms (descriptive)
- Monetary incentives can change behavior such that increasing pay decreases effort (boring task and Israeli study); too low pay
- We change our preferences at prices around zero
zero price effect
- Something is free changes peoples preferences
- Chocolate bars
- Also when transaction cost with free has to be made
Variables
- Independent variable
- Dependent variable
Independent variable
- exposure variable
- manipulated variable
Manipulated by scientist
Dependent variable
- Outcome variable
- Response variable
different types of hypotheses testing
- interviews
- participant observations
- observational data
- survey research
- experiments; can find a causal effect
experiments
- sample of population
- control over extraneous variables
- Manipulation of independent variables
- Random assignments (true effect of intervention, not the cause of chance as the chances are the same)
When not use experiments
- Unethical questions; hunger and mortality
- natural variation; sex varies naturally, you cant have control over it, cant manipulate sex
Relies on natural variation
population, element, sample and census Rotterdam
pop; All people in Rotterdam
Census; all people in rotterdam included
Element; one person in rotterdam
Sample; part of people in rotterdam
Questions before assuming causality
- Is sample representive?
- Could the effect have occured by chance?
Sampling techniques
- Simple random sampling
- stratified sampling
- Convenience sampling
- quota sampling
Simple random sampling
Each member of population has equal chance of being sampled
Probability sampling; every member same chance
Simple random sampling pro and cons
Pro;
- Most likely to lead to a representative sample
Cons:
- Expensive and might be impossible to obtain full list op population
- list must be kept up to date
- Responses rate might below and cause issues
Stratified Random Sampling
- Focuses on strata
- Selection of individuals still random
- random sampling within strata, group represents parts of population
- Randomization within strata
Non probability sampling; not every member same chance
Stratified Random Sampling pro and cons
- Allows more targeted sampling and can be utilized to directly compare
strata (at a small loss of representativeness)
Cons:
* Similar practical issues as with random sampling
- Only representative if response rates are acceptable (at least we now know
where they are centered
Convenience sampling
Use a sample that is conveniently reached and available
- During classes
- Recruitment
- Asking on campus
Convenience sampling pro and cons
Pro:
* Simple, quick and easy way of sampling
* Often in universities systems are in place to facilitate this form of sampling
cons
* Serious issues with generalizing to populations (i.e. very likely a
overrepresentation of some groups)
External validity not good
- Example: a) Newspaper polling their readers, b) recruitment via own social
media, c) university labs
Quota Sampling
Quota based on knowlegde of the proportion in the population randomly assigning people to strata and then a convience sample
- Not random
- Strata
- Convience sample
Quota Sampling pro and cons
pros
* Simple, quick and easy way of sampling
* Allows gathering a sample that is representative-like
cons;
* Non-random sampling still could have error
condition
A condition is a specific part of an experiment where the effect of the independent variable on the dependent variable is tested or measure
between subjects
Condition assigned to one group and compare the outcomes
- There are different groups !
Within subjects
Each subjects complete multipele conditions
- One group to condition A and then move to B
Between subjects
- No learning effects
- Shorter sessions
- Easier to set up and randomize
Within subjects
- Possible learning effects
- Fewer respondents needed
- Fewer noise (random error)
control condition
- No manipulation of independent variable
Condition assignment
- Chance of aspects must be the same
- So there is no noise
- Purely the effect of the intervention
Internal validity
Experiment proves that the changes in the independent variable are really causing the changes in the dependent variable,
- High experimental control
- Reliable measures
- good data quality
LAB
External validity
means how well the results of an experiment can be applied to or generalized to real-world situations or other groups of people.
- Representative samples
- Dynamic context
Conventional lab experiment
- a conventional lab experiment is one that employs a standard subject pool
of students, an abstract framing, and an imposed set of rules
We invite students to the lab, and they receive the instructions
Artefactual field experiment
an artefactual field experiment is the same as a conventional lab
experiment but with a non-standard subject pool (real people), but lab
Representative Tilburg citizens are recruited at the municipality center,
invited to a lab on site and asked to read the instructions on site
Framed field experiment
a framed field experiment is the same as an artefactual field experiment but
with field context in either the commodity, task, or information set that the
subjects can use
- Other environment, but awareness of experiment
Natural field experiment
is the same as a framed field experiment but
where the environment is one where the subjects naturally undertake
these tasks and where the subjects do not know that they are in an
experiment.
not knowing experiment
From field to lab
- subject (from students to real individuals)
- Environment (lab to home)
- Awareness of experiment)
