Topic 1: Introduction to Behavioral Economics
Econ 4660: Behavioral Economics
Professor Ted O
Donoghue
Spring 2015
()
Introduction to Behavioral Economics
Spring 2015
1 / 13
The Science of Economics
G
Econ 4660
Spring 2015
Problem Set 1
[Due in class on Thursday, February 5.]
Question 1:
Consider the following choice:
x ($1000, 0.7; $1000, 0.3)
1
1
1
vs. y $600, ; $300, ; $0,
3
2
6
(a) Ting is an E
Econ 4660
Spring 2015
Problem Set 1 Suggested Answers
Question 1:
(a) The expected values are:
EV (x) = 0.7(1000) + 0.3(1000) = 400
1
1
1
(600) + (300) + (0) = 350.
EV (y) =
3
2
6
Hence, if Ting is an
Econ 4660
Spring 2015
Problem Set 5 Suggested Answers
Question 1:
First, derive the inequality implied by each preference. Specically:
(i) ($71 Now) ($75 next week) implies
$71 < D(7 days) ($75)
or
D(
Econ 4660
Spring 2015
Problem Set 3a Suggested Answers
Question 1:
(a) Here, Paige maximizes wc (c) + wm (m). One candy bar is better than zero candy bars when
1 + (I p) > 0 + I
=
p < 1 .
And two cand
Econ 4660
Spring 2015
Problem Set 5
[Due in class on Tuesday, March 24]
Please remember: For full credit, you must provide clear explanations.
Question 1
Suppose we observe a person making the followi
Topic 4: Public Policy to Combat Errors
Econ 4660: Behavioral Economics
Professor Ted O
Donoghue
Spring 2015
()
Public Policy
Spring 2015
1 / 27
Overview
A major theme in behavioral economics: In some
Topic 3F: Utility from Anticipation
Econ 4660: Behavioral Economics
Professor Ted O
Donoghue
Spring 2015
()
Anticipation
Spring 2015
1/6
Motivating Experiment
Based on Loewenstein (EJ 1987)
Motivating
Econ 4660
Spring 2015
Problem Set 3a
[NOT due answers available on Thursday, February 26]
Question 1:
Suppose there are two goods, candy bars (c) and money (m). Paige has initial income I , and she
is
Econ 4660
Question 1:
Spring 2015
This question asks you to reconsider the when-to-cut-a-tree problem (from Question 3 on Problem Set #4). Once again,
suppose that Mr. X has a tree growing in his yard
Problem Set 0
EC491, Fall 2017
[This problem set is OPTIONAL.]
This problem set is designed to help refresh your skills at solving optimization problems. You can
also use this problem set to assess wh
Problem Set Athos
EC491, Fall 2017
[Due in class on Thursday, September 14.]
Question 1:
Consider the following choice:
x ($1000, 0.7; $1000, 0.3)
1
1
1
vs. y $600, ; $300, ; $0,
3
2
6
(a) Eva is an E
Problem Set Athos Suggested Answers
Question 1:
(a) The expected values are:
EV (x) = 0.7(1000) + 0.3(1000) = 400
EV (y) =
1
1
1
(600) + (300) + (0) = 350.
3
2
6
Hence, if Eva is an EV maximizer, she
Problem Set Aramis
EC491, Fall 2017
[Due in class on Thursday, September 28.]
Question 1:
Suppose that Anne evaluates gambles according to prospect theory with (p) = p and a value
function
x0.88
if x
Problem Set Porthos
EC491, Fall 2017
[Due in class on Thursday, November 2.]
Question 1:
Consider a simple two-period model of intertemporal choice. Suppose that a person receives
income $48,326 in pe
Problem Set Aramis Suggested Answers
Question 1:
The goal here is to find the z such that
1
1
1
(z, 1) (1000, ; 100, ; 1000, ).
3
2
6
Applying prospect theory with (p) = p, this indifference point imp
Topic 3D: An Alternative Model: Present Bias
Econ 4660: Behavioral Economics
Professor Ted O
Donoghue
Spring 2015
()
Present Bias
Spring 2015
1 / 19
Motivation
Exponential discounting implies constant
Economics 4660
Spring 2015
Professor ODonoghue
Cornell University
Information Regarding Prelim #1
Exam Date:
Tuesday, March 3
2:55pm 4:10pm
GS 132 (HEC Auditorium) [in class]
Review Sessions:
There wi
Economics 4660
Spring 2015
Professor ODonoghue
Cornell University
Prelim #1 Grade Distribution and Comments
The exam was worth 140 points. The distribution of scores on the exam was as follows:
Range
Econ 4660
Spring 2015
PRELIM #1
Economics 4660
Professor ODonoghue
Spring 2015
Exam Date: Tuesday, March 3
You have 75 minutes to complete this exam, and there are 140 points. I suggest that you alloc
Econ 4660
Spring 2015
Prelim #1 Suggested Answers
Question 1:
We cannot conclude anything about who has a larger . Because Lottery A has a higher
expected value (450) than Lottery B, but it is also ri
Econ 4660
Spring 2015
Problem Set 6
[Due in class on Thursday, April 9]
Question 1:
This question asks you to reconsider the when-to-cut-a-tree problem (from Question 3 on Problem
Set #4). Once again,
Econ 4660
Spring 2015
Problem Set 4
[Due in class on Tuesday, March 17]
Question 1:
Consider a simple two-period model of intertemporal choice. Suppose that a person receives income
$48,326 in period
Econ 4660
Spring 2015
Problem Set 2 Suggested Answers
Question 1:
(a) If the insurance is actuarially unfair, a larger implies less risk and a smaller expected payo.
(ai) If you are risk-averse, you l
Econ 4660
Spring 2015
Problem Set 3
[Due in class on Tuesday, February 24.]
Question 1:
Consider the bet ( $400, 1 ; $Y, 2 ).
3
3
(a) Suppose that Heidi is an expected utility maximizer with u(x) = ln
Econ 4660
Spring 2015
Sample Prelim #1 Suggested Answers
Question 1:
(a) Ryan will have a larger willingness to pay for full insurance. Zach and Ryan have the
same wealth but dierent utility functions
1)
Suppose that Mr. X has a tree growing in his yard that has become too large, and he must cut it down within the next
four years. Cutting down the tree requires effort, and he would like to wait and