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16 votes

Should I stay or should I quit?

Check out sunk cost. Although this might seem completely counterintuitive, the investment you have made should be irrelevant to your decision to stay or quit, if this investment has already been made ...
M3RS's user avatar
  • 1,087
14 votes

How much do second-hand good purchases affect first-hand demand?

Coase (1972) has a classic treatments of this issue for monopolists selling durable goods. The general idea is that if Alice sells a textbook to Bob, Bob can resell it to Charlie when he is done with ...
BKay's user avatar
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13 votes
Accepted

Should I stay or should I quit?

A relevant literature seems to be that on optimal stopping problems. There is a fairly technical Wikipedia article here and here's a book chapter. In economics, such models have been used to think ...
Ubiquitous's user avatar
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11 votes
Accepted

What is the difference between risk, uncertainty and ambiguity

Here is a decision-theoretic formalization of your definitions. The usual framework to talk about objective risk is the situation where a decision-maker expresses preferences over objective lotteries....
Oliv's user avatar
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9 votes
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Examples of behavioural breakdowns in game theory?

Here is an article that reports about several laboratory experiments showing large inconsistencies between theoretical predictions and observed behavior for some payoff structures: Goeree, J.K. and ...
expqre's user avatar
  • 106
9 votes

The beta delta model

The $\beta$-$\delta$ model, otherwise known as the quasi-hyperbolic discounting model, is introduced as an alternative to the traditional exponential discounting which suffers from the problem of ...
Herr K.'s user avatar
  • 15.4k
9 votes

What is the main reason behind the study of Neo-classical economics, instead of behavioural economics?

Behavioral economics is in large parts a collection of models and theories that purport to explain deviations from the predictions of neo-classical theory. For this reason, textbooks in behavioral ...
VARulle's user avatar
  • 6,900
7 votes

Examples of behavioural breakdowns in game theory?

This question is discussed in detail in the paper: Weibull, J├Ârgen W. "Testing game theory." Advances in Understanding Strategic Behaviour. Palgrave Macmillan, London, 2004. 85-104. Weibull ...
Michael Greinecker's user avatar
6 votes

Should I stay or should I quit?

This handbook provides a broad overview of different modelling approaches to choice theory. Here, I give just one example: discrete choice modelling. Section 2 of this paper offers an example of a ...
luchonacho's user avatar
  • 8,591
6 votes

What is the difference between risk, uncertainty and ambiguity

So far you have got no answer to your last question, about Knight and others' view on risk and uncertainty. In fact, there is quite a radical distinction between the view of uncertainty in Knight (and ...
luchonacho's user avatar
  • 8,591
6 votes

What do game theorists think of behavioural economics?

Disclaimer: My academic coming of age was in an environment where behavioral economics played only a minor role. My research is theoretical, both "behavioral and non-behavioral", economics. ...
Bayesian's user avatar
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6 votes

What do game theorists think of behavioural economics?

There are a lot of game theorists quite open to many versions of behavioral economics. That being said, I think there are some reasons why these are still fairly separate areas. I will focus in ...
Michael Greinecker's user avatar
6 votes
Accepted

Do a group of economic agents really act as if they are rational?

The literature is full of examples in which either individual rationality leads to aggregate rationality individual rationality does not yield aggregate rationality (when public goods or ...
Bertrand's user avatar
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5 votes

Examples of behavioural breakdowns in game theory?

The game you describe is known as the dictator's or ultimatum game, and indeed people typically refuse offers that are less than a 2/3-1/3 split. A lot of research has gone into this in the ...
Maarten Punt's user avatar
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5 votes
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Need help identifying this cognitive bias or fallacy pointed out by Kahneman in Thinking Fast and Slow

When this event occurs it is known as a failure of "transitivity" of preferences. Transitive preferences are such that for every X,Y,Z, if X is preferred to Y and Y is preferred to Z then X must be ...
VCG's user avatar
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5 votes

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

I doubt that the sunk-cost fallacy was a major reason why the Concorde project was pursued for so long (approved by the UK government 1962, entered commercial service 1976). Any "emotional impact on ...
Adam Bailey's user avatar
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5 votes
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Name of example of irrationality of proportional and absolute cost

I think you're referring to the jacket-calculator problem, first proposed by Tversky and Kahneman (1981) as their Problem 10. The paper illustrates the idea of mental accounting with several problems ...
Herr K.'s user avatar
  • 15.4k
5 votes
Accepted

What is a good handbook for behavioral economics?

Sanjit Dhami's The Foundations of Behavioral Economic Analysis is arguably the most comprehensive review of the work in behavioral economics to date.
Herr K.'s user avatar
  • 15.4k
5 votes

Additional components in utility functions (behavioral economics)

Your formulas contain an undefined $p^*$, and the Fehr-Schmidt utility function is wrong. The brackets should be $\max\{p^*-p,0\}$ and $\max\{p-p^*,0\}$, respectively. Apart form that, the two ...
VARulle's user avatar
  • 6,900
5 votes

Additional components in utility functions (behavioral economics)

Thaler's acquisition/transaction utility and Fehr-Schmidt's inequity averse utility apply in very different contexts, and the arguments to the two utility functions are different as well. Thaler's ...
Herr K.'s user avatar
  • 15.4k
5 votes

Do a group of economic agents really act as if they are rational?

Can you explain the rationale behind the above statement in further details? This is an example of an emergent property or sometimes called just emergence. Emergence in layman's terms denotes ...
1muflon1's user avatar
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4 votes

Can lying be disincentivized without serious curtailments of free speech?

If free speech is narrowly defined to only include true claims, true and false claims can be perfectly distinguished, the harm of false claims perfectly measured, and all claims are either true or ...
BKay's user avatar
  • 16.3k
4 votes
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Game theory with rational and irrational players

Yes, a whole book has been written on Behavioral Game Theory. More specifically, standard solution concept such as Nash equilibrium requires that players best respond to a correct belief about other ...
Herr K.'s user avatar
  • 15.4k
4 votes
Accepted

Do people really care about higher moments?

Perhaps there is some evidence toward your claim, but I would argue that in most situations, people do not use point estimates (although some "smoothing" likely occurs). In particular, there is no ...
201p's user avatar
  • 956
4 votes
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Finding Nash Equilibrium

The two (pure) Nash equilibrium in this game is (Betray, Silent) and (Silent, Betray). Let us see why (Betray, Silent) is an equilibrium. Let us look at person A. Person B is playing Silent. If she ...
Walrasian Auctioneer's user avatar
4 votes

Expectation VS forecast

To avoid confusion inherent in colloquial expressions, it is convenient to define and analyze expectations and forecasts using mathematics and statistics. An expectation is then the expected value $\...
Richard Hardy's user avatar
4 votes
Accepted

How are these examples irrational?

a) If Sophie is not indifferent between all options, then completeness requires that she have some ranking between atleast 2 of them. In this case, she must weakly prefer one option to the others.So ...
Pallak Goyal's user avatar
4 votes

Von Neumann-Morgenstern Utility Theory Question

Utility of the expected value and the expected utility of a random value are not the same things. The usual example I give, is suppose you can enter a lottery where there is a 50% chance of winning \$...
Giskard's user avatar
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