Test 1 Flashcards
Daniel Kahneman
2002 Nobel Prize in Economics
Pioneer in behavioral economics
An observer: hid from the Nazis
Helped determine personality in Israel Armies
Judgement and Decision Making
Prospect Theory
Amos Tversky
Mathematical psychologist
worked close with Daniel Kahneman
key figure in the discovery of systematic human cognitive bias and handling of risk.
Didn’t get the Nobel Prize because he died
Helped create prospect theory
Economies
Market fails -inefficiencies
Moneyball model - use better data
Questions over-reliances on data
Biases are a part of markets
Research
Data is not enough
Qualitative research
Richard Thaler
Nobel Prize in 2017
Behavioral economics and finance
Lazy?
Only works on the things he deems important
Misbehaving book (bird)
Economists dominate what?1
Public Policy
What does JDM mean?
Judgement and Decision Making
Dan Ariely
He was injured in an explosion
Used his pain to determine how things in the hospital could change
Israeli descent
Psychology, philosophy, business
“Irrational”
“we can predict it, it becomes a pattern.”
Tried to change way patients were taken care of
Didn’t take nurses pain into account
Cass Sunstein
Cowrote critique on Moneyball and Nudge
Lawyer
Katy Milkman
How to Change
More modern economists
Research on Judgement and decision making
George Lowenstein
Great grandson of Sigmund Freud
Rational Economic Model
Basic assumption of the idea that we are capable of making the right decisions for ourselves
Research Process
Planning, Literature Review, Data collection and analysis, discussion, reflection
Planning
What are they doing/what we will be attempting
literature
Who has already wrote about this?
Data Collection and Analysis
Researchers go out and collect data (keep data fresh in mind)
Discussion
Talk about everything
Reflection
Begin to ask the next questions - which could be turned into another hypothesis
Lorri’s perspective
-Design informs the findings
- Research builds on itself
-collect data….messy
-Make mistakes… we still learn
-cultivate curiosity
Utility
What we get from the consumption of something. subjective to the user
Invisible hand
going in without intent to get things where we want it to go
System 1
automatic, outside of our awareness, immediate and fast, register sounds and locations, distinguishes between normal and surprised, scans the environment, marvelous and flawed, the hero of the story
Examples of System 1
Emotions, reading, driving, carrying a conversation, things we do automatically without thinking
Intuition
Most thoughts are intuitive (Gilbert), powerful and accurate, surprisingly high rate of errors
Perception
Physical and Abstract
System 1 is governed by what?
Habit
System 2
Effortful (mental work), deliberative/inefficient/slow, awareness and thoughts, endorses system 1, lazy, correlated w intelligence, teacher S1 when to mobilize attention, limited capacity (talking on the phone and driving somewhere unfamiliar) *me going to TSWIFT
Examples of system 2
Calculating a math problem, remembering a phone #, filing taxes, driving in heavy traffic/new areas, focusing on 1 voice in a crowded room, checking logic of a statement
More system 2
Judgement is always explicit and intentional, rule-governed, self-monitoring, doubt, limited capacity
Normative Theory
a logically consistent way to think about a problem. Expected utility theory
Descriptive Theory
concerned with characterizing and explaining regularities in the choices that people are disposed to make. Prospect theory
Thaler made the what?
Normative and descriptive theories
Thaler’s mission
“Build descriptive economic models that describe human behavior.”
Bernoulli’s Model
Utility model. Different amounts of utility based on the person
Value Theory (Loss Aversion)
Look at chart in notes
=Can apply to lots of different industries and issues.
Reference point
What you are acclimated to, difference from person to person
Loss Aversion, Gains V Losses
We feels our losses x2 as our gains
Risk Seeking - Losses (BEHAVIORS)
OG loss is more painful than subsequent losses
Take risks to get back even
Risk Aversive - Gains (BEHAVIORS)
OG gain is greater than subsequent gain
Not worth risking more
Too much value on gains
Weber Fechner Law
Psychology theory
JND (Just noticeable difference)
Proportional to the magnitude of the variable
We can make changes and people don’t notice them
Assertions
-Humans rarely choose/understand the value of things in absolute terms
-most people don’t know what they want unless they see it in context
-thinking is different and sometimes unpleasant
-Move towards smaller circles…boost our relative happiness
Decoys
Distraction to nudge you to a certain behavior -Economists newspaper examples
Less desirable version of something
Purpose of decoys?
Production/firms are doing this to shift attention to what they want us to buy
Move consumers toward high level of profitability
Economists Paper Example
Decoy is less desirable (Internet v news paper v bundle)
Other Decoy examples
Rome v Paris v Rome without Breakfast
Pen Discount V Suit Discount
Visual illusions (circles)
Implications in retail
Restaurant Meals
-ppl don’t want to choose most expensive or cheap meal, so put highest price on top with target meal right below
-TV Models, Middle $$ will sell the most
-Used cars
Implications in Direct Sales
Home sales, car sales, insurance sales
Implications for Public Policy
Salaries for CEOs, Transparency in pay
Loss Aversion
Comparison sets up a “loss” for us. Rome V Rome w/o breakfast
System 1 and 2
Middle $ wine is an automatic buy, intuitive, auto reaction, system 2 can check the choice
