behavioralAlanKruegerF11

behavioralAlanKruegerF11 - Books on Behavioral Economics...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Books on Behavioral Economics For those interested in seeing a free book on the topic, click here to obtain a free download of Policy and Choice: Public Finance through the Lens of Behavioral Economics by William J. Congdon, Jeffrey R. Kling, and Sendhil Mullainathan.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Bringing Behavioral Economics into the Classroom Alan B. Krueger Princeton University
Background image of page 2
Oct. 13, 2006 Alan Krueger Elements of Rational Decision Making Utility = the amount of satisfaction a person gets from consuming a good. Utility can also be thought of as happiness (althought it technically goes beyond just happiness) Elements of decision-making Individuals make choices to maximize some objective function (usually utility function) under the constraints that they face Utility function is stable If there is uncertainty, individuals maximize expected utility by assigning probabilities to different states of the world
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Implications of Traditional Approach - Compare opportunity cost of various decisions - Pursue an activity until marginal benefit equals marginal cost - Sunk costs are sunk - Consistent behavior - More choice is better Oct. 13, 2006 Alan Krueger
Background image of page 4
Instrumental Rationality c The traditional approach argues that people follow the dictates of “instrumental rationality”. o “Players (i.e. economic actors or decision-makers) must not only have objectives, but know the correct way to achieve them. But how do the players know the correct way to achieve their objectives? The instrumental rationality answer is that, even though the actors may initially have diverse and erroneous models, the informational feedback process and arbitraging actors will correct initially incorrect models, punish deviant behavior, and lead surviving players to correct models.” o Douglass North (1994)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Oct. 13, 2006 Alan Krueger Behaviorial Economics Fastest growing field in economics Behavioral economics is concerned with the ways in which the actual decision-making process influences the decisions that are made in practice; combines psychology and economics Assumes bounded rationality – meaning that people have limited time and capacity to weigh all the relevant benefits and costs of a decision. Decision making is less than fully rational. People are prone to make predictable and avoidable mistakes. At the same time, decision making is systematic and amenable to scientific study.
Background image of page 6
Oct. 13, 2006 Alan Krueger Bounded Rationality: Thinking Is Costly Example of Bounded Rationality A baseball and bat together cost $11. The bat costs $10 more than the ball. How much does the ball cost? Write down your answer. Half of Harvard students said $1, which is the intuitive
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 22

behavioralAlanKruegerF11 - Books on Behavioral Economics...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online