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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21
votes
7answers
9k views

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 ...
14
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5answers
7k views

Should I stay or should I quit?

Is there an economic theory of quitting an activity? A theory that weighs the investment costs put into something and the opportunity costs of pursuing it. I am aware of Fershtman and Gneezy ...
11
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3answers
358 views

What are the recent advancements in building a unified theory of bounded rationality?

It seems that bounded rationality models focus on explaining a particular psychological bias, in a very specific way. In particular, its seems that the state of the art consensus is that one size does ...
10
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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 ...
8
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5answers
6k views

What is the difference between risk, uncertainty and ambiguity

I am trying to pin down the difference between risk, uncertainty and ambiguity. As I understand, when behavioral economists talk about choice under uncertainty, they mean choice when agents face ...
8
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2answers
774 views

How is momentum justified as a common risk factor?

Momentum as a common risk factor? This question is partly a follow-up to another question found here. In this other question it was noted in momentum is difficult to explain as a common risk factor ...
8
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1answer
160 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 ...
8
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1answer
232 views

On the Ms. Exponential vs Ms. Hyperbolic vignette

I've come across this little parable purporting to show why exponential discounting is superior to hyperbolic discounting1: The greater bowing [of the hyperbolic discount curve] means that if a ...
7
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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....
7
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3answers
106 views

Why does a buyer value a dollar in a small purchase (e.g. TV) differently to a dollar in a large purchase (e.g. car)?

I am referring to how buyers will haggle over 200 when purchasing an item worth, say, 500 but not bat an eyelid paying an extra 5000 on, say, a house. I am seeking a very brief explanation of this ...
7
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1answer
121 views

How much impact does memory have on risk pricing?

Have studies been done that demonstrate the limits of human memory on reputation in the Iterated Prisoner's Dilemma? i.e. at what point (on average) does a player start to "forget" the actions of a ...
6
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4answers
483 views

Tokens vs money

Recently I began thinking about why the use of tokens for money is so popular. In casinos, I think that it is well justified, but there are some cases when those arguments are not useful. For example, ...
6
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4answers
185 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 ...
6
votes
1answer
294 views

What is the point of silent auctions?

A while back, someone decided to auction off something unique and valuable, as a silent auction: everyone would submit one bid only, and whoever bid the highest would win. I submitted a bid that I ...
6
votes
1answer
401 views

Why has increased productivity over the last 100 years not affected how much people work?

If we are generally richer and more productive due to better technology and other factors, why do we still work so much? I understand that there are various incentives to work (e.g. implicit status ...
6
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1answer
57 views

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 ...
5
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3answers
591 views

Are there two different meanings of the discount rate?

Today I suddenly became aware of how the term "discount rate" are frequently used in two different contexts: When people prefer to have something now rather than in the future. The reason is ...
5
votes
2answers
171 views

Tests of rational inattention

Can you provide a reference regarding a revealed preference test(s) of rational inattention models, as proposed by Sims, ergo, using a mutual information measure as the cost of putting attention. And ...
5
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0answers
283 views

Fact-checking Dan Ariely (2008) on Duke basketball tickets story

In Predictably Irrational (2008, pp. 127-133), Dan Ariely describes the Krzyzewskiville phenomenon (Duke students camp for weeks to get basketball tickets), and how he and Ziv Camron used it to study ...
5
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0answers
58 views

Are charitable donations on someone's behalf generally an effective incentive?

A study done in Sweden on 153 female, would-be blood donors showed surprising results. The women were divided into three groups– voluntary donation, paid donation, and paid donation with the ...
4
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3answers
367 views

Is technical analysis somehow a valid method for investment? [closed]

I personally think technical analysis (TA) is not useful at all but I still see lot of courses about technical analysis, and even people using it. They have the advantage of being easy to learn and ...
4
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1answer
95 views

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 ...
4
votes
1answer
165 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 ...
4
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1answer
179 views

Random Choice interpretation

Due to McFadden Economists usually interpret Random Choice, in the population sense, as each DM being drawn from the probabilistic choice rule independently and identically. However, Psychologist have ...
4
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1answer
62 views

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 ...
4
votes
1answer
92 views

Testing if one regressor is a proxy for another

I'm reading Guiso, Sapienza and Zingales: "Trusting the Stock Market" The Journal of Finance, Vol. 63, No. 6, 2008 and have a question about how they test whether trust is a proxy for risk aversion. ...
4
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0answers
64 views

Don't let me take the last bit

I believe everyone has experienced something like the following once in her or his life : There is a cake on the table and three people to share it. The three people each eat a quarter of the cake. ...
3
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2answers
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 ...
3
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2answers
114 views

What does economics say about “starting from” pricing?

I was wondering what economics says about what I would call the “starting from” pricing pattern in advertising. My first question would be whether there’s a more properly defined term for it. It’s a ...
3
votes
1answer
797 views

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 ...
3
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3answers
85 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'...
3
votes
1answer
57 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 ...
3
votes
1answer
78 views

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. ...
3
votes
1answer
96 views

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 ...
3
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2answers
150 views

Why do companies push users to use inferior software?

Sometimes, companies influence users in order to make them use inferior software and other services. For example, Microsoft makes it difficult to use anything other than Bing for Cortana, even though ...
3
votes
1answer
538 views

Behavioral economics and utility function

I'm not very familiar with behavioral economics, but as a recommendation of a teacher I'm reading "A Behavioral New Keynesian Model" by Xavier Gabaix. There's a part that I don't understand, here it ...
3
votes
1answer
34 views

Sources on Educational intervention changing consumer preferences?

I'm doing some research on how education can change a consumers preference for a given good or service. Im looking for more research papers or books that discuss such a topic. I've looked around ...
3
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0answers
53 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 ...
3
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0answers
27 views

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 ...
3
votes
0answers
119 views

Causes of upward trend in median first marriage age in USA?

I found a chart here of median age at first marriage by year from 1890 to 2010. It looks like it dips to a low during the 60s then has an upward trend until 2010. As an answer, I'm looking for any ...
2
votes
2answers
352 views

List of behavioral economists [closed]

Even though there is a massive literature on behavioral economics, i couldn't find anywhere a list of economist that focus on that discipline. Since i am interested in environmental economics, i ...
2
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3answers
2k views

“omission bias” vs “action bias” — how can they be reconciled?

I'm having trouble reconciling these two biases. They seem to be the exact opposite of each other. Yet humans are allegedly pre-disposed to both. How can they be reconciled? Omission Bias: The ...
2
votes
1answer
98 views

Has anyone studied how people's indifference curves can change?

I'm wondering if anyone has looked at how people's indifference curves can change, whether systematically due to experimental manipulations, or if they just vary due to noise. I thought about this ...
2
votes
1answer
52 views

Looking for an article in Behavioral Economics about Inequality

I have been searching for an article that I know exists, but somehow am unable to find. The article is about an economic game where participants are assigned to a group, and can observe how much ...
2
votes
1answer
43 views

Was there any use of scoring rules in economics or finance before Hanson published about LMSR?

Scoring rules arose in the field of meteorology, with the seminal paper published in 1950, but I can't find any references to their using in economics or finance until Hanson published in 2002. Half a ...
2
votes
1answer
36 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 ...
2
votes
1answer
72 views

Is there fundamental economical reasoning for patriotism?

Patriotism is an emotional attachment to a nation which an individual recognizes as their homeland. That is description from Wikipedia and I think it is safe to say that universally all countries ...
2
votes
1answer
233 views

What exactly does “carriers of utility” mean?

I understand what 'utility' mean in economics. While reading "Choices, Values, and Frames" by Daniel Kahneman I encountered above usage. I guess it means 'what utility is attributed to'. Google ...
2
votes
0answers
46 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 ) = \...
2
votes
0answers
24 views

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 ...