Chapter 8 Behavioral Economics Copyright 2018 McGraw-Hill Education.

Chapter 8 Behavioral Economics Copyright  2018 McGraw-Hill Education.

Chapter 8 Behavioral Economics Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The Origin of Behavioral Economics Neoclassical economics Believe our decisions are rational But evidence shows we make systematic errors Behavioral economics Developed to explain these errors

LO1 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-2 Comparing Economic Theories Neoclassical economics People have stable preferences that arent affected by context People are eager and accurate calculating machines

People are good planners who possess plenty of willpower People are almost entirely selfish and self-interested LO1 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-3 Comparing Economic Theories Continued Behavioral economics Focusing on the mental process behind

decisions Improving outcomes by improving decision making LO1 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-4 Combining Economic Theories Viewing behavioral economics and neoclassical economics as complements

Neoclassical economics at the supermarket Behavioral economics at the supermarket Complementary explanations at the supermarket LO1 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-5 Contrasting Economic Theories

LO1 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-6 Our Efficient, Error-Prone Brains Heuristics are energy savers Riding a bicycle with steering heuristics Guesstimating ranks with recognition heuristics The implications of hardwired heuristics

LO2 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-7 Our Efficient, Error-prone Brains Continued Brain modularity System 1 and System 2 Cognitive biases Confirmation bias

Self-Serving bias Overconfidence effect Hindsight bias Availability heuristic Planning fallacy Framing effects LO2 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-8 Prospect Theory People judge good things and bad things in

relative terms, as gains and losses to their status quo People experience both diminishing marginal utility for gains as well as diminishing marginal disutility for losses People experience loss aversion, in that they feel losses much more intensely than gains LO3 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-9

Prospect Theory Continued Prospect theory Losses and shrinking packages Framing effects and advertising Anchoring and credit card bills Mental accounting and overpriced warranties The endowment effect and market transactions Status quo bias LO3 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

8-10 Global Perspective LO3 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-11 Myopia and Time Inconsistency Myopia and Time inconsistency

Fighting self-control problems with precommitments Hiding the alarm clock Automatic payroll deductions Salary smoothing Early withdrawal penalties Weight-loss competitions LO4 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-12 Fairness and Self-Interest Evidence for fairness exists

Giving to charity Obeying the law Fixing prices Purchasing the Fair-Trade products LO5 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-13 Fairness and Self-Interest Continued Experimental evidence for fairness

The dictator game The ultimatum game The rules How players behave Why the threat of rejection increases cooperation Implications for market efficiency LO5 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8-14 Nudging People Toward

Better Decisions UK established a Behavioral Insight Team Used to study nudging people towards choices that are better for themselves and others Paying taxes Attending adult literacy class Increasing saving Can be viewed as a form of manipulation 8-15 Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Recently Viewed Presentations

  • Survey of Acts 15-28 The establishment of the

    Survey of Acts 15-28 The establishment of the

    [24] And a certain Jew named Apollos, born at Alexandria, an eloquent man, and mighty in the scriptures, came to Ephesus. [25] This man was instructed in the way of the Lord; and being fervent in the spirit, he spake...
  • Chapter 1 Making Economic Decisions

    Chapter 1 Making Economic Decisions

    Example: An injection molding process produced plastic cylindrical connectors. The example included data from a sample of two parts collected hourly from four mold cavities for three hours consisting of measurements at three locations on the parts.
  • Diapositive 1 - CanalBlog

    Diapositive 1 - CanalBlog

    Prêtre Chotard joseph 13/10/1746 5e8/160 Maçon Galliot francoise (+) Chotard jacques 29/11/1707 5e7/204 Maître Maçon Dorbecé jeanne Chotard adrien 10/09/1710 5e6/287 (+) pierre bellegarde choquet Jeanne 04/04/1740 5eC Garçon Tonnelier Gaignard pierre Choizeau rosalie 30/12/1771 5e7/629 Vinaigrier Richard augustin Choisye...
  • The Earth-Moon-Sun System - Duplin County Schools

    The Earth-Moon-Sun System - Duplin County Schools

    The Earth-Moon-Sun System. ... This difference results because the direction to distant stars barely changes because of Earth's slow revolution along it orbit. The direction to the sun, on the other hand, changes by almost 1 degree each day. Rotation.
  • Economic Evaluation Tools - Michigan State University

    Economic Evaluation Tools - Michigan State University

    Economic Evaluation Tools Benefit-Cost Analysis Cost Effectiveness Analysis Financial Analysis/Feasibility Fiscal Impact Analysis Economic Impact Analysis Social/Environmental Impact Analysis TYPES OF ECONOMIC ANALYSIS Economic impact analysis (EIA) -- What is the contribution of tourism activity to the economy of the...
  • Available Tools: John The Ripper, Cain & Abel, Rainbow Tables Gain access to the victim's PC Google Hacking: Google hacking is a term that refers to the act of creating complex search engine queries in order to filter through large...
  • Key Concepts - Mrs. Thiessen's Social Studies Classes

    Key Concepts - Mrs. Thiessen's Social Studies Classes

    KEY CONCEPT 1.1. The term big ... peoples around the world developed a new sense of commonality based on language, religion, social customs, and territory. ... many governments encouraged free-market economic policies and promoted economic liberalization in the late 20th...
  • els What does the bible teach Angels What

    els What does the bible teach Angels What

    1Ki 19:5 And as he lay and slept under a juniper tree, behold, then an angel touched him, and said unto him, Arise ... Michael, Gabriel, and Lucifer. The bible also indicates that angels have no gender in Matthew 22:30....