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logic of life one.docx

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ECN 340
Thomas Barbiero

Ryerson University Faculty of Arts Department of Economics Fall 2013 The Logic of Life Tim Harford Chapter one The economics of Intercourse  Teenage oral sex went up in America  1994-2004 young people increased reports of oral sex  Are kids being smart?...consuming more of something that is less expensive rather than something more costly, lower cost with oral sex  Solution to desire of sex  Economists claim: rational people respond to trade-offs and to incentives(and disincentives) when the costs of benefits of something changes, people change their behavior  Rational People think- not always consciously, about the future as well as the present as they try to anticipate likely consequences of their actions in an uncertain world  With this definition, the kids must be responding to incentives: to potential cost of oral sex must be lower than regular sex, thus they substitute as they switch to pepsi if the price of coco-cola rises  Reduced cost of HIV in oral intercourse Importance of the Rationality Postulate  People are rational, leads to clear theories of the way world works, helps us to strip layers of complexity and guide us towards possible solution  ex: if crime rates are high, the ration choice theory says that crime must pay in those areas: we need to look for a way of raising the cost or lowering the benefit of committing crime.  We do make complex calculations of costs and benefits when we act rationally, but we often do it unconsciously. Economics of sex  ex: whenever parental notification laws concerning pregnancy and abortion are passes, Gonorrhea rates start to fall in the teenage population relative to the adult population to whom of course the new laws do not apply. (kids fear reputation and loss of security from parents)  Pregnancy rates also fell as the cost of unprotected sex increased  Behavioral economists have provided plenty of proof so called 'irrationality' Kahneman won the noble prize in 2002 in economics for his work on 'behavioral economics'  The proof usually comes when experimenters show that their subjects have made inconsistent choices  But we cannot extrapolate from a lab experiment unless we are confident that the conditions of the experiment -which we are necessarily contrived resemble the kind of situation we face in real life  John List has discovered something that had been hidden in plain sight: that whatever their merits, the lab experiments had created a bias towards irrational behavior, because they had put ordinary people in extraordinary situation (behavior of econ. is critical to the rationally assumption
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