Minor - Week 4 Flashcards
Demand
The willingness and ability to buy quantity of a good given price and given time
- Qd= A-bP
- quanity
- Ability and willingness
- P and Q inversely related
Demand curve endogenous change
Has to do with in the formula;
- Price and quantity
- Moving up and down the curve
Demand curve exogenous change
Happens outside the formula; marketing, willing to pay more for the product
- Moves down or up, whole graph
- Positve (moves to right)
- negative (downwards or left)
Ex. Vaccination not effective; shifts down (price lower and quantity
Supply
the willingness and ability to sell quantity of a good given the price and time
- Positive slope (want so sell more)
- Qs= A +bP
- Directly related (generate surplus)
Supply curve endogenous change
Has to do with in the formula:
- Price and quantity
- Qs goes up, Ps goes up on supply side (not market)
Supply curve exogenous change
- Outside of the formula; resources for example during covid
Supply curve moves left or right
Positive shock; moves to the right (down); finding a goldmine, quantity higher and price lower
Negative shock; to the left (upwards), cost you more fot he product (price higher for same product), quantity lower, price higher
Steps to analyse exogenous shock
- Define market
- Demand or supply or both
- Positive or negative
- Why?
equilibrium
- high supply fall in price
- Low price fall in supply
- low supply higher price
- Higher price high supply
NCE and behavioral
- Expected utility vs. prospect theory (reference dependance)
- Discounted utility vs. hyperbolic discounting
Risk
refers to the uncertainty around a transaction
Risk types
Risk Neutral: Indifferent towards risk (payoff = expected value)
Risk Averse: Do not like risk; need compensation to take risk (payoff > expected value)
Risk Seeking: Enjoy risk; offer compensation to take risk (payoff < expected value)
There’s a 90 % chance you got 1000 and 10 % chance you get 0.
What is the expected value?
- Risk Neutral:
- Risk Averse:
- Risk Seeking:
- Risk neutral payoff is expected = 900
- Risk averse; payoff > 900
- Risk seeking; payoff< 900
Prospect theory to the rescue
People weight gains and losses differently.
* People weight probabilities differently.
* People weight magnitudes depending on a reference point.
Diminishing utility loss aversion
- Was lineair
- Needed to make it steeper
- Apply diminishing effect
PV
= FV/ (1+R)^t
- kan je nu omschrijven naar FV= pv *(1+R)^t
NCE: PV = δ0U0 + δ1U1 + +δ2U2 + … + δtUt
* BE: PV = δ0U0 + βδ1U1 + βδ2U2 + … + βδtUt
Difference is adding of present bias parameter
- Let op dat je wel de utility pakt bij de juiste tijd
Violations of discounting rates
- Quasi hyperbolic discounting
- Sequence effect (ascending order lower discounted)
- Magnitude effect (lagers outcomes discounted at lower rate than small outcomes)
Two nash Equilibriums
Stag hunt
- Both parties can gain from each other if they work togehter.
- Prisoners dilemma strong incentive to confess towards each other
crowed and uncrowded street and prisoners dilemma relevance
Crowded (busy street): When no one cooperates, it becomes crowded and chaotic. Own interest living
Uncrowded (quiet street): When everyone cooperates, it stays calm and well-organized.
Prisoner’s Dilemma: Not cooperating = bad outcome. Cooperating = best outcome.
ultimatum game and policy relevance - Smoking program
- Need to make an faire offer, otherwise the other party will not accept
- Fair offers increase participation
(assuming everyone takes anything above 0 euro), but it needs to be fair otherwise not accept
monotonic preferences
- Weakly; you need both to have more utility, both cars and gasoline
- Strong; one of the goods is sufficient; apples and organes
Three basic psychological needs Deci & ryan
- Compentence
- Relatedness / conectiveness
- Autonomy; self relient
Move from a motivation to extrinsic and intrinsic motivation
motivation types
- extrinsic; outside of yourself
- intrinsic; inside yourself motivation (pure interest, curiosity, challenge, enjoyment)
intrinsic motivation
Inherent tendency to seek out out of curiosity, to extend and excersise your capacities and explore and learn
- Personally rewarding
- vb; sports and hobbies
- hampered by external rewards
- has more benefits; better performance, more self esteem, more determination
Extrinsic motivation
Any source of motivation that is not pure interest and enjoyment
is external
- extrinsic motivation is internalized over time
sorts of extrinsic motivation
- external regulation (rewards and punishments); avoid punishmentt
- introjected regulation (guilt, compulsion); avoid guilt or improving self esteem
- Identified regulation (valued goals); leadership eg
- integrated regulation (value fully assimilated into yourself); leadership as a value of yourself
Taxonomy of incentives (adams et al 2014)
- Direction
- Form
- Magnitude
- certainty
- Target
- Frequency
- Schedule
- Immediacy
- Recipient
Direction incentive
- How is it framed (Is the incentive a gain to be had or a loss to be avoided?)
- Use losses; people are loss averse
Ex; 240 euro now, each month you smoke you pay 20 euro
Alternative; commitment contracts (pay me 120 and add 120)
forms incentive
-Cash
- Vouchers
- Free stuff
forms incentive cons
One problem of offering cash is that it might be spend on exactly that which the recipient should try to avoid
Can backfire, maybe introduce market norms in stead of social norms; blood donation
Payed out as vouchers, giftcards
Magnitude incentive
Pay enough or dont pay at all
- Not paying enough introduced cost benefit thinking
- the higher the reward, the smaller the extra motivation or benefit for the people receiving the reward.
Target incentive
What should be incentivized?
- Targets that are in direct control of thereselves should be incentivized
- non conditional; such as weight loss is out of control
- Must be easy in behavioral control
Incentives certainty
Incentives are given with a chance of winning
- Instead of paying everyone, give one a larger amount
- Certain chance lotteries; knowing your chance
- Uncertain chance lotteries; not knowing your chance
But reasons to avoid uncertain chance lotteries
- Loss aversion
- Risk aversion
- chance of not getting anything
incentives frequency
Sort forms;
- piece rate incentives; every time payment
- Low frequenies; after 2 times payment etc. Lager after 3 times!
- Lump sump; after completion
Things to consider
- Positive discount rate
- Sequence effect (use this heuristic)
- Short term effect
incentives schedule (fixed or variable)
Constant or varying?
- Constant
- varying; increasing/ decreasing for period of time (loss aversion and gains)
- Streak effect
Study mariuana
Why relevant - fixed/ variable incentives
- Adapt to rewards
- Are more sensitive to changes than absolute amounts
- Care about sequences
- Do not want to break a ‘streak’
Incentives - recipient
- individuals
- groups / teams
- significant others
- good causes (charity)
pitfalls of using financial incentives to stimulate health behaviour
- crowding out effect
- self efficacy
- choking under pressure
Crowding out effect
incentives reduce the need for intrinsic behavior, but introduce market norms
- Beliefs and attitudes might be changed forever
Agent;
- intrinsic motivation
- extrinsic motivation
- image motivation ( care about your image)
principle decides about incentive structure (not well informed)
self efficacy and incentives
Only financial incentives work if individuals believed thay have he skillset to perform the behavior.
choking under pressure incentves
Can increase stress and self-consciousnesses, even so that high skilled individuals are likely to choke or fail in their desired behavior
advantages of incentive
- Often care about short term effects; one shock behavior
Drinking when pregnant, sex eduction, vaccination - Lot of different forms
Disadventages incentives
People are heterogeneous and not every incentive is tailored
Think about:
- not everybody same discount rate
- Some prefer losses and some gains
Dual-systems model of attitude change / Elaboration of likelihood model
- Central route
- Peripheral route
Central route - Dual systems model of attitude change
Deliberate system (system 2)
- analystical
- High effort
- Lasting change - Long term
Be more productive to change
peripheral route - Dual systems model of attitude change
Automatic system (system 1)
- Not motivated and analytical
- Low effort; cues outside the message
- Temporary change
Brief reminder
- short term; just a reminder about some information
Theory of planned behavior
- Attitude (positive or negative towards something- feeling)
- Subjective norm (peers acting and social norms)
- Percieved behavioral control (what do you think i can do)
Intention
Behavior
Theory of planned behavior - example healthy behavior through sport
- subjective norms (what other peers do)
- attitude (feeling towards sport)
- PBC; control over sport capities
Health belief model (HBM) components
- Percieved benefits vs percieved barriers (most important)
- Percieved threat
- Self-efficacy
- Cues to action (trigger to decision making)
Leads to likelihood of engaging in health promoting behavior
Models of information campaigns;
- The dual system model of attitude change
- The health belief model
- the trans theoretical model (stages of change)
- theory of planned behavior
Health belief model (HBM) components - percieved threats factors
-Percieved seriousness
- Percieved susceptibility
The transtheoretical model
- Pre contemplation (think about behavior - beliefs)
- Contemplation (active search, what do i think about)
- Determination
- Action
(relapse) - Maintnance
Effective communication - Lasswell and 5 W
- Who (is the communicator?)
- Says what (message)
- in which channel (medium)
- To whom (target reciever)
- With what effect (effect)
Who - Lasswell and 5 W
- Who are main actors for health campaign?
- What is the scope and what source (the communicator must connect to the target recievers)
- Which sources are credible (actors vs docters)
What -Lasswell and 5 W
Strategies for message design
Message tailoring
- Target group
- Personal relevance
Framing (react different to something )
- transportation, identification, narrative persuasion, story telling
- Loss and gain
Emotion; fear appeal (threat), disgust, humour
Which (media) - Lasswell and 5 W
Which channels?
- exposure of a channel, who do you reach with it?
- How can different channels work togehter
e.i.; pamflets, social media. newspapers
To Whom?- Lasswell and 5 W
also the intended audience
- target group?
- Do they have higher risks?
- What are their preferences
With what effect (effect) - Lasswell and 5 W
- What were intended outcomes
- How to monitor effects of communication
Survet, RCT, likes shares, page visits, comments
When not use information campaigns?
Intention action gap
What is a better approach when the gap between intention and action is due to external barriers or practical issues?
When the intention-action gap is caused by external barriers or practical issues (rather than a lack of knowledge or awareness), it is more effective to address the actual context (cues in the environment)
Making it easier for people to act by removing obstacles and simplifying actions can lead to better outcomes.
barriers for effective communication
- Persuasion; alpha and omega
- 4 faces of resistance; reactance, distrust, scrunity and slowness
- PKM model (persuasion knowledge model)
- Resistance coping behavioral; cognitive coping, emotional coping, behavioral (avoidance)
Persuasion - Barrier for effective communication
Alpha; attempt to persuade by increasing approach forces
omega; by decreasing avoidance (reduce resistance)
PKM
persuasion knowlegde model
- the target population has knowledge and also will influence the dynamics about campaigns with information
- Target and agent
- topic, persuasion, agent/target knowledge
- Knowledge about persuasion attempts of the agent to the target
How does a government can improve market outcomes?
- Regulating common resources
- Providing public goods
- Remedying the effects of externalities and market power
- Addressing behavioural biases
Reasons to intervene as a government
Limiations of ind. desicion making
- Lack of information
- Devations from rationality (biases)
Conflicts between individual and social interest
- Allocation of finite resources
- externalities
Individual interest vs social interests, why and when?
Individual self interested; why
- Social wellbeing decreased by individual self interested maximizing own wellbeing
- not taking account of impact on society by their behavior
By decisions about:
- Finite shared resources
- Externalities (actions unintended outcomes on others)
Finite resources in healthcare, possible consequence
Overuse or sub optimal allocation of finite resources
e.g.
Overuse; AM
- overuse leads to resistance
- Socially nog preferable, individual beneficial
- Externalities
Suboptimal allocation; healthcare providers
- Limited doctors and time
- Individual preferences, only the wealthy get care (rational if additional becomes beneficial
- Additional care often less beneficial for richer
negative externalities def + eg
An unpriced byproduct of production or consumption that adversely affects another party not directly involved in the market transaction
- Smoking
- polution
- Drunk drivers
- Infections covid 19
positive externalities
An unpriced byproduct of production or consumption that positive affects another party not directly involved in the market transaction
- Vaccination
- Healthy habits motivate others
- Education
tools for changing unhealhty behavior as government
Command and control policies; regulate behavior directly
- Limits consumption
- Impose price caps (plafond)
- Mandatory behavior
Market based policies; provide incentives consumers will choose solve problem on their own
- taxes and subsidies
- Pollution permits
Taxes as instrument to correct for overconsumption; in picture
- Buyers pay more (Pb)
- Producers recieve less (Ps)
- revenue; €T x QT (only at Qt)
- loss of consumer and producer surplus (Qe- QT) (not sold because of tax
Taxes as instrument to correct for overconsumption
- Increase costs; lower the quantity supplied & demanded at equilibrium
(elasticity results in spread of tax burden) - Revenue for government, but less than market that transactions in the deadweight loss would occur
when is a tax more effective
Same government revenue, but smaller costs to taxpayers
Costs of taxpayers
- Administrative burden
- Deadweight loss
- tax payment itself
Elasticity and taxes
- More elastic; more payed by producers
- Less elastic; payed by the consumer
Subsidy
Increase the consumption of a good
- Increases consumption through government expenditure
- Also adds some deadweight loss
- total surplus increases, but by less than the government spends on the subsidy
why deadweight loss subsidy
Overconsumption by lowering the price
- Consumers buy more than they normally would, even if the product isn’t worth that much to them.
- Producers make more than needed because they receive extra money from the government.
Internalizing externalities
altering incentives so that people take account of the external effects of their action
Internalizing - negative externalities graph
Negative externality = costs!!
- Private costs (supply)
- Private value (demand)
Through externalities costs for society is higher (secondhand smoking eg.)
- social costs (private + external)
- Supply curve upwards or left
- lower quantity
social costs - negative externalities
externalities - supply
- Private
- External
External costs - negative externalities
value of the negative impact
on bystanders
pigouvian taxes
Taxes equal to the external costs
positive externalities
Positive externality = value!
- Private value
- external benefit
government should subsidy
External benefit - pos externalies
value of positive impact on others)
Private value - pos externalities
the direct value to buyers
Social value optimal quantity - pos externalities
Left of Q: Social value > cost. Too little is produced.’
Right of Q: Cost > social value. Too much is produced.
At the optimal Q, social value equals cost, maximizing welfare.
pigouvian subsidy
Subsidies equal to external benefits are called Pigouvian subsidies,
Summary externalities
Negative externality
- market quantity is larger than socially desirable
Positive externality
- market quantity is smaller than socially desirable
Remedy
- Tax for negative externalities
- Subsidy for positive externalities
determinants of demand of goods
- Price of commodity
- Prices of other commodities
- The income of the individual
- The preferences of consumer
Elasticity of demand
how much the demand changes when there is a price change
- Percentage change demand / percentage change price
inelastic demand
- percentage change in price is greater than percentage change in quantity demand
- Price elasticity less than 1 (-1) 0-1
- If P goes up 1%, then Q (demand) goes down less than 1%
- Graph is linear down steep
Elastic demand
- Percentage change in quantity demand is greater than percentage change in price
- If P goes up by 1%, then Q(demand) goes down by more than 1%
–Graph is linear less steeper
- Price change changes
Perfectly Elastic Demand
- 0
- Price constant
- horizontal line
- Every price change no buyers
- perfect competition; buyer can buy same product somewhere else against same price
Elasticity taxes and demand
- Higher elasticity taxes more effective in bringing demand down and less unhealthy behavior
Tax revenue is higher when elasticity is
Low; necessary good
- People keep on buying
Inelastic demand if
- good is a necessity
- Time period is shorter
- the smaller the number of close substituties
- the more broadly defined the market (food market, prices up, no subsitutes)
Behavior change and tax revenue
- Inelastic; price little on demand, tax much revenue, but not effective in behavior change
- Elastic; demand reacts to price, effective in behavior change not much revenue
Cons to taxes
- Subsitutes with similar impact are not taxed (cross border shopping)
- Some good more often by lower income; increasing will only affect them
regulations example
- Price ceilings
- Smoking bans
- No alcohol to kids
- Forbid sale of drugs
- Forbid cigarette advertisement
Price ceiling cons
Otherwise there was more supply
- Shortages
- Longer waiting lines
- non price rationing (other than prices to distribute)
- Poorer health outcomes
