Week 1: Introduction

Question 1

institutions

Answer 1

Institutions = norms or rule that shape and constrain human behavior. Institutions don’t define behavior; they shape behavior by setting incentives.

Question 2

rationality vs. bounded rationality

Answer 2

Rationality Example: In 2000 elections, there was poll dropoff for Nader because voters didn’t expect him to win (although they would have preferred him as president).

Bounded Rationality Example - Endowment Effect & Status Quo Bias

Question 3

classical vs. behavioral economics

Answer 3

Neoclassical economics, for many decades, has revolved around the choices that human beings make in a perfect world. The classic “Economic Man” will make the most logical and rational decisions that will maximize his utility and satisfy his interests. he only problem with this traditional way of thinking is that human beings are not perfect and the classic “Economic Man” ceases to exist.

A new way of looking at economics has emerged that takes a human’s imperfectness, or “bounded rationality,” into consideration.Since our people are the ones that create jobs, spur economic growth, and contribute to the work force, the bounded rationality of individuals will translate and affect the growth of our nation

Question 4

endowment effect

Answer 4

Bounded Rationality Example - Endowment Effect.
people ascribe more value to things merely because they own them

Mugs. Those given mugs valued their mugs more than those not given mugs.

Question 5

status quo bias

Answer 5

Status Quo Bias: an emotional bias; a preference for the current state of affairs. The current baseline (or status quo) is taken as a reference point, and any change from that baseline is perceived as a loss

Some given mugs, some given candy. People tended to keep whatever they were given rather than trading.

Question 6

organizations

Answer 6

Organizations = collections of institutions that permit collect action (that allow many individuals to act with one purpose).

Question 7

governance vs governance task

Answer 7

Governance = the task the state performs for its citizens and the institutions that incentivize the performance of those tasks.

Question 8

new public management

Answer 8

New Public Management draws practices from the private sector and uses them in the public sector of management.

The New Public Management reforms use market forces to hold the public sector accountable and the satisfaction of preferences as the measures of accountability. In order for this system to proceed, certain conditions, such as the existence of competition, must exist and information about choices must be available