Section_7 - Econ 119: Psychology and Economics Section 7...

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Unformatted text preview: Econ 119: Psychology and Economics Section 7 TOPIC II.2: Anticipatory Utility and Projection Bias March 3, 2010 1 Big Picture 1) Anticipatory utility Anticipatory utility is the utility the agent gets from anticipating future outcomes (thus is a modification to the basic structure of a choice over time problem or intertemporal problem.) Since it depends on things that will happen in the future, anticipatory utility is a form of belief based utility. Another type of beliefs based utility is Ego Utility. Both, agents who experience anticipatory utility and (or) ego utility have incentives to mange their beliefs. In particular, there is plenty of evidence on inflated beliefs. 2) Projection Bias Projection Bias captures the notion that agents are not accurate at predicting their future utility but rather they tend to project their current level of utility into their (prediction of) future utility levels. 2 Key Terms My hunch is that you have a good working knowledge of Anticipatory utility and Utility from Beliefs (lectures 10, 11 and 12) if you can explain the following concepts:- Avoidance of useful information- Overly optimistic beliefs- Ego utility 1- Review the evidence of inflated beliefs: market entry, over-trading, excess of mergers.- Review the evidence of inflated beliefs: market entry, over-trading, excess of mergers....
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This note was uploaded on 09/02/2010 for the course ECON 119 taught by Professor K during the Spring '08 term at University of California, Berkeley.

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Section_7 - Econ 119: Psychology and Economics Section 7...

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