Week1

Question 1

What is the hard core of economics?

Answer 1

The belief that people behave rationally as if they maximise a well-defined utility function (can neither be verified or falsified)

Question 2

What is the protective belt of economics?

Answer 2

Additional assumptions that are imposed on the utility function (e.g: monotonicity)… they lead to testable predictions and protect the hard core from scrutiny

Question 3

What is the Hawthorne Effect?

Answer 3

Subjects modify their behaviour when they know that they are being studied

Question 4

What is the independence CC axiom?

Answer 4

For all lotteries, A,B, containing a common consequence, a change in CC can not change a persons preference between A and B

Question 5

What is Allais’ paradox?

Answer 5

Individuals prefer certainty over a risky outcome even if this defies the expected utility axiom

Question 6

What is the reflection effect?

Answer 6

People have different risk preferences over positive and negative outcomes (context-dependent)

Question 7

What is the isolation effect?

Answer 7

People isolate the gamble from the initial income

Question 8

What is the Event-Splitting effect?

Answer 8

EUT treats two lottery pairs as identical… an ESE occurs when an individual goes against this