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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82 views

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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7answers
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How does Black Friday work?

On days like Black Friday, everyone rushes out expecting huge savings on everything they buy. The level of demand seems to reach ludicrous levels, and one would expect smart merchants to react by ...
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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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2answers
99 views

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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36 views

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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24 views

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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1answer
28 views

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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Decreasing performance pay in the risk-aversion of the principal

What is the intuition behind a decreasing performance pay ß if both principal and agent are risk averse compared to a principal being risk neutral and an agent being risk averse? Actually, intuitively ...
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1answer
58 views

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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3answers
1k views

Was the Concorde project an example of the sunk-cost fallacy?

The sunk-cost fallacy has also been dubbed the Concorde Fallacy. Examples of the Concorde Fallacy in the academic literature and beyond I believe Dawkins and Carlisle (1976) were the first to use ...
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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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112 views

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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35 views

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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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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15 views

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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28 views

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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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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Welfare Effects of Sophistication vs Naiveté on Present Bias

In lecture, we said that naive agents are better off than sophisticated agents in situations with current costs and future benefits, such as quitting smoking, while sophisticated agents are better off ...
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1answer
37 views

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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1answer
45 views

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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52 views

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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3answers
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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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1answer
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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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64 views

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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Looking for behavioral economics research about the redemption of gift cards

This is a long shot! I was wondering if anyone could point me to any behavioral economics or other economics research on perceived value, specifically I'm looking at why some people don't redeem ...
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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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2k views

The beta delta model

What is the $\beta$-$\delta$ model? How does it relate to present bias and the present value calculation?
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1answer
162 views

Kőszegi - Rabin (2006) model problem

First of all, that's a homework question, and I will try to make it as useful to future readers as possible. Problem So, I was given a problem about the model described by Botond Kőszegi and ...
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0answers
25 views

Dominated lotteries in CPE

I have been looking into expectation-based loss aversion following Kőszegi-Rabin (2005, 2007). In particular, I find their choice-acclimating personal equilibrium (CPE) interesting, but it has a ...
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1answer
95 views

What economics theory explains changes in purchasing different types of goods?

I am thinking about the first of the month. I spend more of my money on superior goods and, because of that decision, less on normal and inferior goods. Are income and substitution effects enough to ...
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Calculate power for multiple rounds of public goods experiment

I would like to calculate/simulate the a-priori necessary sample size for a repeated public goods experiment. $N$ Participants play $R$ rounds of a public goods game (linear, voluntary contribution ...
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1answer
51 views

Sunk cost fallacy- is it a bug or a feature?

I was having a conversation with a colleague regarding sunk costs, and discussion came up that the appeal of falling for the sunk cost fallacy might be a feature rather than a flaw, as it is behavior ...
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Are there any experiments about financial games with just one player?

I was wondering if there are any experiments of financial games (laboratory games under controlled circumstances like Plott and Sunder's Rational Expectations and the Aggregation of Diverse ...
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What is the best example social norm effect economy?

Here is my example. I read the paper called "Social norms and Energy Conservation" (2010) by Hunt Allcott, about the energy conservation of households by providing them with the amount of energy ...
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1answer
55 views

Beta delta Agent - Consumption decision

I’m struggling with a problem regarding the beta delta agent. Can someone give me a hint how I can come up with the levels of utility? Thanks in advance!
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4answers
189 views

Examples of behavioural breakdowns in game theory?

I'm trying to compile multiple scenarios of the breakdown of game theory. Specifically, I'm looking for scenarios where game theory predicts certain behaviours, but in real-world scenarios or ...
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2answers
100 views

Do people really care about higher moments?

I have heard that people often handle uncertainty using point estimates not probability distributions. However, I have been unable to find any evidence for this in the heuristics and biases literature....
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1answer
168 views

Bounded rationality with Quantal Response Equilibrium model for an Extensive Form game

I am working on my Master thesis based on bounded rationality in behavioral game theory models, I wanted to know if QRE(Quantal Response Equilibrium) can be applied to games where players have ...
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1answer
70 views

Luce Choice Axiom, Quantal Response Equilibrium

How is the Quantal response equilibrium model influenced by the Luce choice axiom since Quantal Response equilibrium takes into account the rationality parameter ß and I dont see the mention of ...
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1answer
70 views

Has any person ever actually planned his or her consumption according to Modigliani’s LCH?

https://en.wikipedia.org/wiki/Life-cycle_hypothesis?wprov=sfti1 It seems self-evident to me that nobody on Earth actually does this. Real people are short-sighted, undisciplined, and lack the ...
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References? — Coordination Between Groups

Can anyone provide references for research that focuses on coordination between groups of decision makers rather than within group coordination with individual decision makers? \ Edits given the ...
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1answer
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Entrepreneurs and risk aversion

The are various opinion whether entrepreneurs are more or less risk-averse than the general population. The commonly held belief is that they are less so, but the contrary opinion exists as well. ...
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1answer
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Game theory with rational and irrational players

Are there game theoretic models where one player is rational and the other is irrational (i.e., plays with behavioral limitations)? The motivation for this question is that behavioral economics has ...
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«Behavioural economics is also useful in macroeconomics»

In this VOXEU article, the authors talk about a model in which behaviour economics is applied to macroeconomics. I'm trying to understand fig.1, and the following sentence: «This means that if the ...
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1answer
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Was there resistance, historically, to the idea that human behavior deviates from rational decision making theory?

I have edited this question considerably to narrow the focus. A recent New York Times article was published on the Nobel Prize for Economics. The article discusses that Nobel laureate Richard Thaler ...
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3answers
87 views

The right term for a market that tends towards consumers switching suppliers freely

Say there's a bunch of competing businesses, car repair shops for example, in a certain market. Business is good and there's a substantial average turnaround time for all of them. Someone decides they'...
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Concept for “when a mechanism exists which can be exploited, people will exploit it”

I dimly recall a concept, I think defined by an economist, although I cannot remember the details or context. I think an example--apocryphal or not--was welfare recipients who would have more ...