Behavioral Economics Exam 1 Rated A+
Ambiguity Aversion - ANSWER-A preferences to know risks over unknown risks.
Violates EU
Anchoring - ANSWER-A judgement or decision is influences by a proper cue or event.
Is a violation of procedural invariance and can take the from of insufficient adjustment or
priming
Ariely, Lowenstien, Prelec (2003) - ANSWER-Provide evidence for coherent
arbitrariness by using participants SSN as an anchor (look at paper for more details)
Attraction Effect - ANSWER-The introduction of a choice that is asymmetrically
dominated by another choice influences the relative attractiveness of the dominating
choice violating regularity and evidence that preferences are constructed
Availability - ANSWER-Serves as a mental shortcut if the possibility of an event
occurring is perceived as higher simply because an example comes to mind easily
Availability - ANSWER-The ease with which one can recall or construct an event in
one's mind influences the estimate of the probability of that event
Barbeis (2013) - ANSWER-Risk aversion and perception of probability loss plays a role
in insurance purchases
Base Rate Neglect - ANSWER-A common consequence of representativeness. Prior
info is severely discounted or ignored when judging the probability of an event
Beta - ANSWER-Parameterize self-control and (over)confidence issues. Equal to 1
person is naive and mis-predictions future consumption. Equal to itself person is fully
aware and makes perfect future consumption predictions.
beta-delta model - ANSWER-A quasi-hypoerbolid discounting developed by Liabson
(1997) that captures present bias.
Budgeting - ANSWER-Done through constructing non-fungilble categories. Can help
with self-control
Camerer (2004) - ANSWER-Racetrack betting. There is an increase in longshot bets at
the end of the day. This results from daily bracketing and loss aversion with causes
beers to want to close their accounts positively at the end of the day
Camerer, Babock, Lowenstein, Thaler (1997) - ANSWER-Why is it hard to find a cab in
the rain? Narrowing bracketing and reference-dependence
, Choice Avoidance - ANSWER-Delaying a difficult decision. Potential causes: preference
to look for "easy" decisions, avoiding or delaying regret, internal uncertainty
Coding - ANSWER-An essential step in editing where the decision maker determines a
reference point and then codes outcomes as either gains or losses to it.
Cognitive Features of PT - ANSWER-A neutral reference point, diminishing sensitivity,
loss aversion
Common Outcome Effect and Allais Paradox - ANSWER-Preferences can be changed
by sliding gambles A and B over by .89 for the $0 outcome from the $100 outcome
generating gambles C and D. Violates the independence axiom
Common Ratio Effect - ANSWER-Violates the EU and the independence axiom
Compromise Effect - ANSWER-The tendency of individuals to choose an intermediate
in a choice set. Evidence that preferences are constructed
Day, Shum, Camerer (2015) - ANSWER-Elastic asymmetry as a result of sale price
being used as the RP. This causes loss averse buyers to buy more of the good not on
sale. Buying the good that was previously on sale is seen as a loss
Delay/Speed-up Asymmetry - ANSWER-People are not willing to pay as much to
speedup consumption as they are willing to accept to slow down consumption. DU
anomaly
Denominator neglect - ANSWER-When attention is focused on the number of
occurrences without accounting for the population size
Diminishing Sensitivity - ANSWER-Certainty increases the aversiveness of losses as
well as the desirability of gains. Violates EU
Discount Utility Model - ANSWER-Developed by Samuelson (1937) to look at choice
over time. Its simplicity and elegance made it widely appealing despite its many
shortcomings.
Editing - ANSWER-Consists of coding, combination, segregation, cancellation,
simplification, and dominance. Presented problems because depending on the order of
ones editing and rounding, different outcomes dominate each other
Ellsberg Paradox - ANSWER-People prefer to take on known outcome over unknown
outcome. An example of ambiguity aversion and violates EU
Endowment Effect - ANSWER-Preferences over objects are changed when
endowments change. Specifically, subjects' valuation of objects are higher after they
have been given them than before
Ambiguity Aversion - ANSWER-A preferences to know risks over unknown risks.
Violates EU
Anchoring - ANSWER-A judgement or decision is influences by a proper cue or event.
Is a violation of procedural invariance and can take the from of insufficient adjustment or
priming
Ariely, Lowenstien, Prelec (2003) - ANSWER-Provide evidence for coherent
arbitrariness by using participants SSN as an anchor (look at paper for more details)
Attraction Effect - ANSWER-The introduction of a choice that is asymmetrically
dominated by another choice influences the relative attractiveness of the dominating
choice violating regularity and evidence that preferences are constructed
Availability - ANSWER-Serves as a mental shortcut if the possibility of an event
occurring is perceived as higher simply because an example comes to mind easily
Availability - ANSWER-The ease with which one can recall or construct an event in
one's mind influences the estimate of the probability of that event
Barbeis (2013) - ANSWER-Risk aversion and perception of probability loss plays a role
in insurance purchases
Base Rate Neglect - ANSWER-A common consequence of representativeness. Prior
info is severely discounted or ignored when judging the probability of an event
Beta - ANSWER-Parameterize self-control and (over)confidence issues. Equal to 1
person is naive and mis-predictions future consumption. Equal to itself person is fully
aware and makes perfect future consumption predictions.
beta-delta model - ANSWER-A quasi-hypoerbolid discounting developed by Liabson
(1997) that captures present bias.
Budgeting - ANSWER-Done through constructing non-fungilble categories. Can help
with self-control
Camerer (2004) - ANSWER-Racetrack betting. There is an increase in longshot bets at
the end of the day. This results from daily bracketing and loss aversion with causes
beers to want to close their accounts positively at the end of the day
Camerer, Babock, Lowenstein, Thaler (1997) - ANSWER-Why is it hard to find a cab in
the rain? Narrowing bracketing and reference-dependence
, Choice Avoidance - ANSWER-Delaying a difficult decision. Potential causes: preference
to look for "easy" decisions, avoiding or delaying regret, internal uncertainty
Coding - ANSWER-An essential step in editing where the decision maker determines a
reference point and then codes outcomes as either gains or losses to it.
Cognitive Features of PT - ANSWER-A neutral reference point, diminishing sensitivity,
loss aversion
Common Outcome Effect and Allais Paradox - ANSWER-Preferences can be changed
by sliding gambles A and B over by .89 for the $0 outcome from the $100 outcome
generating gambles C and D. Violates the independence axiom
Common Ratio Effect - ANSWER-Violates the EU and the independence axiom
Compromise Effect - ANSWER-The tendency of individuals to choose an intermediate
in a choice set. Evidence that preferences are constructed
Day, Shum, Camerer (2015) - ANSWER-Elastic asymmetry as a result of sale price
being used as the RP. This causes loss averse buyers to buy more of the good not on
sale. Buying the good that was previously on sale is seen as a loss
Delay/Speed-up Asymmetry - ANSWER-People are not willing to pay as much to
speedup consumption as they are willing to accept to slow down consumption. DU
anomaly
Denominator neglect - ANSWER-When attention is focused on the number of
occurrences without accounting for the population size
Diminishing Sensitivity - ANSWER-Certainty increases the aversiveness of losses as
well as the desirability of gains. Violates EU
Discount Utility Model - ANSWER-Developed by Samuelson (1937) to look at choice
over time. Its simplicity and elegance made it widely appealing despite its many
shortcomings.
Editing - ANSWER-Consists of coding, combination, segregation, cancellation,
simplification, and dominance. Presented problems because depending on the order of
ones editing and rounding, different outcomes dominate each other
Ellsberg Paradox - ANSWER-People prefer to take on known outcome over unknown
outcome. An example of ambiguity aversion and violates EU
Endowment Effect - ANSWER-Preferences over objects are changed when
endowments change. Specifically, subjects' valuation of objects are higher after they
have been given them than before
