CAS EC 102 Lecture Notes - Lecture 4: Nash Equilibrium, Game Players, Daniel Kahneman

• School: Boston University
• Department: Economics
• Course: CAS EC 102
• Professor: Graham Wilson

Document Summary

They find that if the scale of the gamble increases, people become more risk averse. People choose the safe option (a) longer before switching to the risky option (b). Figure 2: the higher the payoff, the higher the probability of a at every decision with uncertainty (line moves up and to the right). Holt and laury in their article risk aversion and incentive effects find evidence for a) the existence of increasing relative risk aversion, especially in the treatment with real payments. Rabin ( a perspective on psychology and economics) Solution; change some of the assumptions about human behavior (that are inconsistent with real behavior) Rabin explains that behavioral economics is not an alternative to neoclassical economics. It makes use of developed methods and principles, but changes some of the assumptions in order to create models that more closely match real human behavior. Rabin notes that economic subjects probably overreact to changes for a variety of reasons.