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Unformatted text preview: Department of Economics University of California, Berkeley GSI: Josh Tasoff Spring 2010 Econ 119 Last Updated: 4/11/10 Section Notes 5 1 Agenda 1. Announcements 2. Questions? 3. Cheat Sheet for “Making It Up As We Go Along” 4. Practice Problems 2 Announcements 1. There was a mistake on the Section Notes 4 that I handed out in the last section. The pdf on bspace has the corrected version. 3 Cheat Sheet for “Making It Up As We Go Along” Below are a list of concepts that you should know, with the definition from the lecture notes. • Narrow Bracketing : focusing on a single decision independently of other concurrent deci- sions. – Example: Would you like to take a 50-50 gamble to win $6/lose $4? How about 100 such gambles? Would you take the gamble if you held risky assets that were equivalent to 100 such gambles? • Context Effects (or menu effects): irrelevant alternatives affect preferences. – Asymmetric Dominance : adding a strictly dominat ed option makes the strictly domi- nat ing option more desirable. Example: Vanilla Ice Cream or Chocolate Cake; tough choice. Vanilla Ice Cream, Melted Garlic Ice Cream, 1 Chocolate Cake; the melted garlic ice cream makes the vanilla look better. 1 You can try soft serve garlic ice cream at the Gilroy Garlic Festival. It is as good as it sounds. 1 Department of Economics University of California, Berkeley GSI: Josh Tasoff Spring 2010 Econ 119 Last Updated: 4/11/10 – Choice Overload : too many choices causes people to choose the default. Example: more 401(k) options, the more likely one chooses the default. – Compromise Effect : people go for the middle choice. Example: choose a wine from the menu, (2008 Cabernet for $20, 2001 Pinot Noir for $50) vs. (2005 Cabernet for $20, 2001 Pinot Noir for $50, 1994 Extra Snooty Bordeaux for $100). The extra snooty bordeaux increases purchases of the 2001 pinot noir. • Coherent Arbitrariness : people do not know their WTP/WTA for novel goods that they have little experience with. However their preferences are coherent in the sense that more increases WTP if WTP>0 and decreases WTP if WTP<0....
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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 Berkeley.
- Spring '08