Chapter 7-Economic behaviour Flashcards
What is a cardinal utility?
Rating of the utility of an option.
What is the delay-speedup asymmetry?
The observation that people want more compensation for delaying a gain than they are willing to pay for speeding it up, and want more compensation for speeding up a loss than they are willing to pay for delaying it. Give an example.
What is the disposition effect?
The tendency of investors to hold losing stocks too long and to sell gaining stocks too early.
What is the endowment effect?
The tendency of people to demand a higher price to sell goods in their possession than the price people are willing to pay to buy these goods. (Jag köper ett bord för 300 kr och är inte villig att sälja det för mindre än 310 kr)
What is a hedonic calculus?
Computation of utility as the net balance of benefits and costs (pleasure and pain)
What is hedonic framing?
The tendency of people to increase the value of gains and losses by integration or segregation.
What is the magnitude effect?
The observation that people want more relative compensation for delaying small than a large sum of money.
What is loss aversion?
The motivation to prevent losses. If you are focusing on what people are losing instead of gaining it is so much more motivating (politics).
What is the ordinal utility?
Based on ranking options. A has higher utility than B but we don’t know how much. (Preference for A over B?)
What is the prospect theory?
Prospect theory is a behavioural economic theory that describes the way people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are unknown. The theory states that people make decisions based on the potential value of losses and gains rather than the final outcome.
Losses are more painful than gains are pleasurable (connected to loss aversion). Separate events are valued more (spread out presents and it will feel better, people dislike to pay insurance twice).
What is the Scarcity effect?
We don’t want to lose the freedom of choice (25-50% off only today-slide). You only have one chance to buy it and it is now. I might have ‘‘lost’’ something goof if I don’t buy it.
What is the welfare function of income?
A research about people’s preferable income.
-Preference shift: People tend to adjust their consumption to their new income.
What is the subjective expected utility theory? (Edwards)
The dominant theory of decision making. What a person expects regarding gain and losses. Based on loss aversion? Gambling behaviour: People go for the smaller sum if the sum is definite ‘‘at least I get something’’ instead of losing all.
Regulatory focus theory (Higgins)
Two self-regulation strategies: (two kind of people-know which type of regulatory fit is needed for the person you are trying to persuade)
Promotion focus: gains/non-gains
Prevention focus: losses/non losses
Find 1 euro in a trolley: Either you are a person who believes that you gained a euro or a person who sees it as you lost 1 euro if you don’t take it.
Daycare research (paying a fine if the parent is late): How did it go?
It backfired because people saw it as they are paying for being late. It needs to be a big amount for people to see it as a loss.
