ECON 310 Study Guide - Final Guide: Base Rate Fallacy, Libertarian Paternalism, Affective Forecasting
Document Summary
This handout summarizes the main points that we covered after midterm. This is not a complete guide to what you are responsible for knowing for the nal exam! The nal will cover all material we learnt in the semester. Projection bias: this is the phenomenon in which people underappreciate changes in their state-dependent preferences, projecting current preferences over consumption (in their current state) onto future preferences over consumption (in some other state). That is, they mispredict their future preferences in a systematic way. A person with projection bias at time t predicts their utility at time > t from consuming c according to the following model: U(c , s |st) = u(c , st) + (1 )u(c , s ). In many situations, projection bias or naive hyperbolic discounting can explain behavior. Projection bias means that people don"t realize what their utility function will be, and may change their plans when they learn it.
