Test #2

Question 1

“As If”

Answer 1

The idea that people can’t do the math that these theories require

Question 2

The stick of “As If”

Answer 2

They don’t need to, they behave “as if” they do.

Question 3

Examples of As If

Answer 3

Expert billiard players (they don’t know the physics but we can take the shot like we did)
Same with catching a baseball

Question 3

Takeaway of As If

Answer 3

We are all not experts when the decisions are easy, we may get it right

Question 3

The Gauntlet

Answer 3

Focuses on attacks towards behavioral economics by economists arguing decisions don’t matter.

Question 3

Anchoring Research Methodology

Answer 3

Used sounds because it wasn’t used yet, divides group into 2 and gave
them time to contemplate the sounds/ money being offered, and yes you
can get an anchor in a market that doesn’t exist. The anchors carried into
the next set of questions regarding money

Question 3

Freakonomics Brand Premium Methodology

Answer 3

Was already collecting data for Neilson Homescan Panel, so they tacked
these questions on the end. They did this so that had people with similar
occupations, knowledge of the survey, and it was still a big dataset but a
narrowed down view.

Question 3

How do we break these anchors?

Answer 3

i. Questioning why we do this
ii. Giving ourselves time to adjust, you wil adjust that anchor
iii. Gas price example with inflation or the overinflated example
iv. People will adjust with time and reacclimate to new
prices/experiences/example

Question 3

Anchoring (Ariely)

Answer 3

i. Staring/reference point. Initial idea on price itself
1. Price you paid for first TV, you will compare it to every TV
bought after
2. Anchors are set the first time we see $$ and contemplate the
purchase
3. SS# from the book, last two digits
4. Once and anchor is set, it CANNOT BE CHANGED
5. I do this with Last Stop and Barnes and Noble

Question 3

Herding

Answer 3

1st impressions are important, we follow along and we are humans/social
creatures. Examples used were the Italian restaurant on the east coast. Go
where the people are. Car fast food example of parking in front of
a restaurant so it looks like there are people there

Question 3

Arbitrary Coherence (Ariely)

Answer 3

You know things are worth more than others, yet we stay consistent.
i. TV examples
1. Every electronic

Question 4

Self-herding

Answer 4

i. We get in line behind ourselves, Starbucks example about continuing to go
there day after day behind ourselves
1. Personal example is me with Boba or Slims
ii. Set anchor by making experience different
1. Ambience , options, etc

Question 5

Brand Premuim (Freakonomics)

Answer 5

Store brands and national (premium) brands are the SAME THING. However,
people continue to buy the more expensive brand, Why?
i. Comfortability, used to buying it, “magic” golf balls

Question 6

Relativity &Decoys (Ariely)

Answer 6

a. Decoys are a distraction to nudge you to a certain behavior –Economist magainze
example
b. Shifting our attention to want they want us to buy
c. Rome V Paris V Rome with Breakfast

Question 7

Sunk Costs(Thaler)

Answer 7

Sunk Costs are when you purchase something; you aren’t going to get that money
back, so you want to use it. Spend money, can’t get it back

Question 8

Why does Thaler call them a SIF? (Sunk Costs)

Answer 8

It’s already been spent, so you can’t get it back, you can’t change it so it
shouldn’t matter

Question 9

Sunk Cost Fallacy

Answer 9

Making decisions based on a sunk cost.
ii. Wine example – not a purchase but an investment. Time Shares too
iii. Invest
1. We don’t realize the loss until we lost it. Feels like we are getting
it for free since it’s been a while

Question 10

Mental Accounting/Budgets (Thaler)

Answer 10

Modern-day equivalent to mason jar counting, the value the individual person places on money/how to count or save it

Question 11

What does Thaler say about a dollar?

Answer 11

A dollar is a dollar so it doesn’t matter if you spend it

Question 12

Is there a value on strict mental accounting?

Answer 12

This is basically an opinion

Question 13

House money

Answer 13

House money is the money you win while in a certain place so it doesn’t feel “real.” Basically two pocket accounting and house flippers used this and didn’t see it as losing anything until they did

Question 14

Breakeven effect

Answer 14

Similar to sunk costs- no desire to record loss. Unusually willing to take risk to breakeven, applies equally to people who tend to be risk averse. Investment traders risking more at the end of the period

Question 15

Liquidity

Answer 15

Thaler: Cash is made to spend.
Other Research: Cash is more salient and increases our pain of paying. Consumers spend more when they use credit cards an they are more likely to spend with card than cash

Question 16

Defaults

Answer 16

Opt-in and opt-out policies, examples include retirement plans, online cookies, promotional emails/texts, text chains, apple defaults, etc, etc

Question 17

Can we construct a choice without a default?

Answer 17

No, most choices we are presented wiith have a default

Question 18

Article Review (Organ donation)

Answer 18

Opt-out policy, so the organ donation levels were higher than in places with an opt-in. Relative effort-it takes effort to opt-in/out. Implied recommendation-where the default is set.

Question 19

What impact does culture play?

Answer 19

Nothing

Question 20

Can default change the outcome?

Answer 20

YES, researchers were shocked. Defaults are incredibly powerful

Question 21

Framing

Answer 21

Perspectives on how to organize, perceive, and communicate reality. It is an inevitable process that results from the meaning that individuals attribute to words/phrases. (90% survival to 10% death). An integral part of conveying/relying info/phrases. Effects people to varying degrees

Question 22

Framing can be what?

Answer 22

Positive or negative. P=less risky N=seems more risky

Question 23

Understanding frames

Answer 23

Consider framing from previous discussions, opp. cost consideration, defaults (essentially a frame)

Question 24

Invisible Handwave

Answer 24

One of the sticks that Thaler mentioned. The idea there is that people might make mistakes, but they operate within markets, and that these markets discipline behavior. Invisible hand, wave terminologies is a not Adam Smith he position that when people act in markets in their own self interest that serves an invisible hand on the economy, promoting the public good.

Question 25

Incentives

Answer 25

if stakes are raised, the argument goes, people will have a greater incentive to think harder, ask for help, or to do what is necessary to get the problem right

Question 26

Learning

Answer 26

people have opportunities to learn

Question 27

What are the questions that economists fight with behavioral economists on?

Answer 27

As If, Learning, invisible hand wave and incentives