![]() ![]() Heuristic - Simple rules of thumb to help people make judgements. Hindsight bias - After the fact, we think that we always knew the outcome was likely. Paying a surcharge is out-of-pocket, whereas not receiving a discount is a “mere” opportunity cost. Opportunity costs are vague and abstract when compared to handing over actual cash. Giving up the opportunity to sell something does not hurt as much as taking the money out of your wallet to pay for it. ![]() People value things they already own higher (your endowment) than things that were available but not yet owned. Supposedly irrelevant factors (SIFs): Factors that economists consider irrelevant in influencing economic outcomes. The primary reason for adding humans to economic theories is to improve the accuracy of the predictions made with those theories. Beliefs upon which people make their choices are not unbiased.īehavioral economics: Economics done with strong injections of good psychology + other social sciences. ![]() ![]() Optimization problems that people confront are often too hard for them to solve.Misbehaving - Behavior that is inconsistent with the idealized model of behavior that is at the heart of what we call economic theory.Įconomic theory is mostly flawed for two reasons:. ![]()
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