ECON 200 Chapter Notes - Chapter 8: Behavioral Economics, Sunk Costs, Cognitive Bias
25 Feb 2015
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Chapter 8: behavioral economics: a closer look at decision making. Behavioral economics- a field of economics that draws on insights from psychology to expand models of individual decision making. People can hold two inconsistent sets of preferences. What we would like to want in the future. What we will want in the future. Time inconsistency- when we change our minds about what we want simply because of the timing of the decision. Explains behaviors like procrastination and lack of self-control. Time-consistent individual is being neither irrational nor rational. Future-oriented and present-oriented selves within the individual are each rationally pursuing their own objectives. Commitment device- an arrangement entered into by an individual with the aim of helping fulfill a plan for future behavior that would otherwise be difficult. Thinking irrationally about costs erroneous decisions recovered. Cognitive biases- systematic patterns in how we behave that lead to consistently. Sunk cost- a cost that has already been incurred and cannot be refunded or.
