Questions tagged [behavioral-economics]

A branch of economics that incorporates insights from psychology by allowing for systematic deviations from idealised rational behaviour.

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Does envy and identity fall under "social preferences"?

Social preferences refer to concepts such as reciprocatory, altruism, fairness and inequity aversion, as outlined in Fehr & Fischbacher (2002) and here. Does greed or envy fall under "social ...
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Do economics (as a science) provide any hints on how games with none/multiple NEs will be played in real life?

Let's consider a simple non-cooperative one period game. Let's note that it is relatively easy to run an experiment which will very closely reproduce the theoretical model (e.g. unfamiliar people are ...
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How are these examples irrational?

I am reading A Course in Behavioral Economics third edtion written by Erik Angner. I am struggling with page 30, exercise 2.40: Exercise 2.40 Irrationality Explain (in words) why each of the ...
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Have I completed all the appropriate statistical analysis for my Behavioural Economics Experiment and have I done it correctly?

I have conducted a Behavioural Economics Experiment as part of my Undergraduate degree which I now need to compile an academic paper on. The research questions I am looking to answer are: Does fake ...
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How much do second-hand good purchases affect first-hand demand?

For the purpose of this question, I'm only interested in relatively cheap goods (clothing, appliances, furniture, phones), not extremely substantial purchases like cars or houses. Proceeding from ...
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Verbal cues offered instead of Rewards (Behavioral)

I was speaking with a server the other day. She told me that customers who proclaim they had the greatest service always leave the poorest tips. I started thinking about how this trend replicates ...
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Does the choice of rating scale affect the average percentage score?

Are there any differences in average percentage score when people are asked to judge things on different scales? Like for example rating something on 0/100 scale or a 0/5 scale or 0/10. Do different ...
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How to measure mental accounts of an individual?

I wonder whether its possible to identify mental accounts as defined by Richard Thaler https://www.jstor.org/stable/183904 given i observe consumption and/ or investment behavior of an individual? I ...
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How to measure utility functions in the stock market

i am looking for some articles on how to identify and estimate utility functions in the stock market. My own search results yielded some papers by Blackburn and Ukhov https://www.researchgate.net/...
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Convergence of different models for the disposition effect?

I am struggling with the following problem: in a paper, Markku Kaustia (2012) https://www.jstor.org/stable/40930477 found that Prospect Theory does not explain the disposition effect. A similar study ...
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Expectation VS forecast

I'm confused at the difference between the 'expectation' and 'forecast'. In behavioral economics, forecast bias is defined as the difference between expectation and forecast. However both sound pretty ...
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What is the main reason behind the study of Neo-classical economics, instead of behavioural economics?

In the courses, we are taught economics theoretically,inclusive of assumptions,simplicity and inferences based on the optimal thinking. But, later on we see that most of the theories and hypothesis ...
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Utility of both players in St. Petersbourg paradox - behavioural economics

Im reading a paper by Karl Menger [1] about the St. Peterbourg paradox : In the theory of probability, the "Petersburg Game" designates the follow- ing gamei between two persons, A and B. ...
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1 answer
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How many utility functions can a person have?

Classical choice theory assumes that each person has a utility function, and chooses from each set of options an option that maximizes this utility. There are many empirical studies that refute this ...
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Do a group of economic agents really act as if they are rational?

When questioning the rational choice hypothesis, I often get responses that are similar to the followings: "Individuals may sometimes make irrational decisions, but a large group of economic ...
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Could Allais Paradox and similar experiments be harmonized with expected utility theory by noting additional counterparty risks?

My answers to the initial formulations of Allais Paradox are 1B and 2B, but only for setups where I have a high degree of confidence in the method of randomness being employed. In many if not most ...
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7 votes
2 answers
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Are there any behavioral macro models with rigorous micro-foundations?

I am looking for some paper that tries to establish rigorous micro-foundations the behavioral New Keynesian (or any other) macro models. This is surprisingly hard, most work on this topic (like De ...
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Whether companies and consumers are in-group and out-group in misperception?

Bursztyn (2021) says that Misperceptions about others are widespread, asymmetric, much larger when about out-group members, and positively associated with one’s own attitudes. Some examples of in-...
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Is there any example for "pluralistic ignorance" in economics?

Today I read a paper recently written by Bursztyn, 2021 saying that The origin, persistence, and rigidity of misperceptions about others can in principle be explained by different conceptual ...
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2 votes
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Is there any overlap between Rawlsian approach and uncertainty avoidance?

From the definition of the Rawlsian approach The Rawlsian approach to social welfare, built on the foundation of the “veil of ignorance” (Rawls, 1999, p. 118) where "veil of ignorance" is ...
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In experiments of 2-by-2 games where the dominant action benefits both players, do people frequently choose the other action?

Sayers et al look in Some descriptive aspects of two-person non-zero-sum games at variations of the prisoner dilemma. They had two participants (α and β) pressing press either a black (1) or a red (2) ...
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What cognitive biases reduce savings?

In Thinking Fast and Slow Kahneman explains that people can sometimes save less because they underestimate the future benefit to themselves because they view present and future self differently. I ...
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Hyperbolic Discount function

I'm trying to determine my hyperbolic discount function for a given set of my own time preferences. I have determined that I am indifferent between {$}1000 today and {$}1004 tomorrow; {$}1000 today ...
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Does elasticity make sense for different levels of prices? If not, how can we fix that?

Let's say we know that our customers can't make sense of a raise in 5% of the price. It's too little for them to notice. However, an increase above 10% is easily noticed. If this is true, different ...
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What is the significance of the findings in Nagel's 1995 paper on Learning Theory?

This post concerns the findings in Nagel (1995). It is a bit outdated but nevertheless still relevant. She examines the Guessing Game, and how individual study-subjects behave in repeated games. In ...
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As a (micro) behavioral economist looking for a faculty job, how should I present my research approach/skill set? [closed]

I am asking as someone who has applied behavioral econ theory to design lab experiments and a couple field experiments. I notice that there is a bias against experiment-based research on the market. .....
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1 answer
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Gamification and incentives

Is there any (theoretical?) work on "gamification" in game theory? I do not have a proper definition of gamification, but StackExchange would be an example. Contributers like us provide a ...
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Finding Nash Equilibrium

Where would the Nash equilibrium lie in the pictured scenario? Whats confusing me is that both persons best response changes depending on the choice of the other person (there is no dominant strategy)....
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Estimating $\tau$ (cognitive hierarchy)

I am a little confused about how the parameter $\tau$ is usually estimated in a cognitive hierarchy model (recall that $\tau$ is the mean number of 'thinking steps'). For example, suppose that ...
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Intuition on cumulative prospect theory, based on equi-probable outcomes?

I am trying to build my intuition on the weighting/decision function in cumulative prospect theory. I have a hard time getting a clear picture for even the simple case of equi-probabilities. Assume ...
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Help finding the right term - Behavioural Finance / Pricing jargon

There is a phenomenon used in Economics(?)/Marketing/Pricing/Psychology when selecting the right price for your product. Within a certain price range, the customer is insensitive to changes in the ...
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noise traders in neo-classical economics vs behavioural economics

Does neoclassical economics/finance exclude the existence of noise traders (as a contrast to rational traders)? Or do neoclassical models also sometimes accept the existence of noise traders?
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Should the "value function" be "utility function" in prospect theory?

I have a background in mathematics rather than economics, and currently reading Choices, Values, and Frames[1]. The paper defines a "hypothetical value function" (the s-shape that is concave ...
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Term for risk AND ambiguity

This question is related to References for particular definitions of risk and uncertainty, which offers an excellent description of risk and uncertainty. Just as a recap: Knight (1921) described risk ...
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4 votes
2 answers
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Additional components in utility functions (behavioral economics)

I am looking for a term describing the second part of a utility function in behavioral economics and related disciplines. For example, Thaler (1983) describes a utility function that could be ...
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How does interest rates impact investment

How does a decrease in interest rates decrease investment rates? This is how I believe a liquidity trap works, not sure if it is correct. Thank you
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Specification of the parameters of this utility function [Behavioral Economics]

This is from page 274 of "Advances in Behavioural Economics" by Camerer, Rabin, Loewenstein. This chapter of the book is entitled "A theory about fairness, competition, and cooperation". I have ...
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Analytically solvable examples of quantal response equilibrium

I have been reading up on quantal response equilibrium and am looking for some simple examples which can be solved analytically (in order to gain some intuition about how exactly QRE works). To be ...
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To learn applied behavioural economics

Behavioural economics has offered many insights into decision-making processes, and experimentally, many cognitive biases have been identified, nudges have been tested etc. Reading all such literature,...
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6 votes
1 answer
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What is a good handbook for behavioral economics?

I recently got interested in behavioral economics because it seems to have a lot of interesting applications in other fields such as macroeconomics. I managed to find a lot of interesting sources on ...
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2 votes
1 answer
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Capital Recovery Factor for Hyperbolic Discounting

I'm looking for a closed-form capital recovery factor when hyperbolic discounting is used. The Wikipedia article on hyperbolic discounting has this formula for the "present value of a series of equal ...
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1 answer
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Is there any overlap between evolutionary and behavioral game theory

Evolutionary and Behavioral game theory are two different techniques. Both seem to be inspired from biology. So is there any overlap between their theory? Are the two complementary to each other in ...
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3 votes
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Behavioral Dictator Game

I am doing a self study on behavioral economics and I am trying to solve behavioral version of the dictator game with following utilities for person 1 and 2. $$ u_1( \sigma_1, \sigma_2 ) = \...
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person owns object, loses it and refuses to buy it the second time. Is it really an example of sunk cost fallacy?

I was traversing the web with examples about the sunk cost fallacy, and bumped into some example that a bit confuses me. The example is taken From here (https://market.subwiki.org/wiki/...
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4 votes
1 answer
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Name of example of irrationality of proportional and absolute cost

I am trying to give a puzzle from behavioral economics illustrating on the irrationality of thinking of costs in proportional rather than absolute terms. I remembered vaguely an example like this but ...
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1 vote
1 answer
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Framing Effect Risk-Aversion Risk-Pursuit

I am an economics' graduate seeking to study Law and I want to illustrate the importance of legal certainty. Penalties, Costs are negativelly framed. I am trying to word. 200 dollars with 50% ...
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7 votes
2 answers
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What do game theorists think of behavioural economics?

Though behavioural economics has been popularized over the past decade in both industry and pop culture, it seems that not much has changed with regard to the standard economic definition of ...
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Do you know any paper that discuss the effect of the deterrence of fines of individuals' behaviours? What is the difference between a fine a fee?

According to Gneezy and Rustichini the presence of an extrinsic reward in activities with a level of intrinsic motivation (e.g. volunteering) reduces intrinsic motivation, thus it may determine ...
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What experiment could I run in order to test the 'Independence of Irrelevant Alternatives' axiom?

I need some help in designing an economics experiment to test the IIA axiom. My understanding of it is if you rank A above B then if you introduce C or D, you must still always rank A above B in any ...
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Is truth cheap, and falsehood expensive and volatile? [closed]

Question: In a scenario where data is bought and sold in a double-auction market, will the trading price and volatility of a given piece of data become inversely proportional to its accuracy over ...
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