Irrationality

Question 1

How did Dan approach the question about which bandage removal method was best?

Answer 1

The experimental method, where he put many people in an environment where he could test and compare their experiences of pain under different conditions.

Question 2

What is Decision illusions

Answer 2

Decision illusions are tricks that our minds play on our judgment.

Question 3

In what way does focus groups help us understand people’s actions?

Answer 3

Not at all, actually. We should not look to introspection to understand people’s actions. Focus groups provide questionable results when it comes to explaining preferences and behavior.

Question 4

Why might a forced choice procedure be an effective method for determining what people really want?

Answer 4

It would isolate people’s true preferences by eliminating their ability to not choose.

Question 5

What is a forced choice?

Answer 5

A situation where a person has to choose between the alternatives, without the possibility to stick to a default option.

Question 6

How can we design a program so that people are less likely to participate?

Answer 6

• Make them opt in to the program, so that the default is to not participate
• Emphasize the urgency of the program
• Stress the importance to participate
• Require lots of complex, difficult choices

Question 7

How can we design a program so that people are more likely to participate?

Answer 7

• Pay them to participate
• Supervise them as they make their choice
• Make the registration process fun
• Make participation a default option
• Give people simple, straightforward information.

Question 8

How can an added undesirable option influence how a question is answered?

Answer 8

When an undesirable option is added to a group of choices, it can alter the decision that is made.

Question 9

What did Dan’s experiment show by having people write down the last digits of their social security number?

Answer 9

It shows the Anchoring effect. Once the number was introduced, it became the reference point from which further prices were judged.

Question 10

What can you do to encourage someone to value something more highly?

Answer 10

Pair it with a similar but slightly less desirable product.

Question 11

What did Dan’s experiments on pain reveal about the hedonic calculus of painful experiences?

Answer 11

• Painful experiences that are twice as long are not twice as painful
• Intensity of pain has a stronger effect on memory than duration
• Progression of pain over time matters: It is better to start with higher pain and end with lower pain.

Question 12

Why are physicians more likely to predict they’d send a patient to a hip replacement specialist when they were provided with two alternative treatments, rather than just one?

Answer 12

They were especially likely to take the path of least resistance when deviating from the default became more complex.

Question 13

What effect does initial decisions have on future decisions?

Answer 13

Initial decisions can have a disproportionate effect on future decisions.

Question 14

You have two options: a vacation in Rome or a vacation in Paris. Which third option would make you more likely to choose the vacation in Rome?

Answer 14

A vacation in Paris without free tea.

Question 15

How does the rational model suggest that we decide how much we are willing to pay for coffee?

Answer 15

The greater the pleasure the coffee brings, the more we are willing to pay for it.

Question 16

What is Self-Herding?

Answer 16

It is when one initial action sets a new standard for the behavior.

One day, you are desperate for a parking spot, so you park illegally in a reserved spot. From then on, every time you don’t immediately find parking, you remember your past behavior and pull into the reserved parking spot.

Question 17

What’s the difference between how economists and psychologists typically interpret the relationship between behavior and hedonic utility?

Answer 17

Economists tend to say that hedonic utility predicts decision-making, but psychologists have demonstrated a two-way relationship.

_{(Ariely, D. & Norton, M. I. (2008). How actions create—not just reveal—preferences. Trends in Cognitive Sciences)}

Question 18

What does the field of neuroeconomics offer the field of economics in terms of directly assessing utility?

Answer 18

We can see which brain regions are associated with certain purchasing decisions.

_{(Ariely, D. & Norton, M. I. (2008). How actions create—not just reveal—preferences. Trends in Cognitive Sciences)}

Question 19

What is shown about Construction of Value, when Dan Ariely asks his student to pay for him reading poetry?

Answer 19

It shows that the willingness to pay for the event differs as an effect of priming. People were initially primed to think of whether they would pay or be paid for the experience.

_{(Ariely, D., Loewenstein, G., & Prelec, D. (2005). Tom Sawyer and the construction of value. Journal of Economic Behavior & Organization)}

Question 20

What does the article “Tom Sawyer and the construction of value” show about “coherent arbitrariness”?

Answer 20

People can initially value goods arbitrarily, and the relative values they set on following items are assigned with respect to the anchoring price.

_{(Ariely, D., Loewenstein, G., & Prelec, D. (2005). Tom Sawyer and the construction of value. Journal of Economic Behavior & Organization)}

Question 21

Why does Kahneman & Tversky’s Prospect Theory violate standard economic theory?

Answer 21

People are loss averse; they make decisions based on the pain of loss as compared to the pleasure of gains, rather than making decisions based on the probability of the final outcome.

_{(Tetlock, P. E., & Mellers, B. A. (2002). The great rationality debate. Psychological Science)}

Question 22

Why is default choices a public policy issue?

Answer 22

Defaults can interfere with true preferences, serving as an unethical (or at least unnecessary) method of paternalism.

_{(Johnson, E., & Goldstein, D. (2003). Do defaults save lives? Science)}

Question 23

Why do people often choose default options?

Answer 23

• The effort required to check a box on a form is too high. - It can be stressful to make tough decisions. - The default represents the status quo, and people have difficulty straying from the status quo. (Johnson, E., & Goldstein, D. (2003). Do defaults save lives? Science)