Introduction to Behavioral Economics
by Just, David R.Edition: 1st
Format: Paperback
Pub. Date: 2013-11-25
Publisher(s): Wiley
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Summary
Introduction to Behavioral Economics is focused on the broad principles of behavior, which are illustrated using real-world examples from experimental literature as well as experiential examples. Real-world examples are drawn from news items, historical accounts and the economics literature. Experimental examples are drawn from the economics literature. These examples are discussed providing explanatory figures and interpretations. With the rise of both behavioral finance and behavioral industrial organization, undergraduates now clamor for formal training and instruction in behavioral economics. Introduction to Behavioral Economics covers all the ways consumers and other economic agents behave in nonrational manner and prepares readers to make rational economic choices. This text provides experiments as a set of examples of the broader principles of behavior.
Author Biography
David Just is Associate Professor and Director of Graduate Studies in the Department of Applied Economics and Management at Cornell University where he regularly teaches undergraduate and graduate courses in econometrics, microeconomics, and behavioral economics. Professor Just's areas of expertise are behavioral economics, risk and uncertainty, and information while his research interests center around the use of information, and more particularly, how differences in human capital and information availability affect decisions.
Just received his Ph.D. from the University of California, Berkeley in 2001.? His professional activities include Board Member, Northeast Agricultural and Resource Economics Association; Committee Member, American Agricultural Economics Association; and Honor Societies, Phi Kappa Phi, Golden Key, Alpha Lambda Delta, Phi Eta Sigma, Omicron Delta Epsilon.
Table of Contents
Preface
Chapter 1. Rationality, Irrationality and Rationalization
Rational Choice Theory and Rational Modeling
Rationality and Demand Curves
Bounded Rationality and Model Types
The Special Relationship between Behavioral Economics and Experimental Economics
Thought Questions
Suggested Readings
Appendix A. Deriving Demand Curves
Part I. Consumer Purchasing Decisions
Chapter 2. Transaction Utility and Consumer Pricing
Rational Choice with Fixed and Marginal Costs
Fixed versus Sunk Costs
The Sunk Cost Fallacy
Theory and Reactions to Sunk Cost
History and Notes
Rational Explanations for the Sunk Cost Fallacy
Transaction Utility and Flat-Rate Bias
Procedural Explanations for Flat-Rate Bias
Rational Explanations for Flat-Rate Bias
History and Notes
Transaction Utility and Consumer Preferences in Reference
Theory and Reference Dependent Preferences
Rational Explanations for Context Dependent Preferences
Thought Questions
Suggested Readings
Appendix: Fixed Costs and Rational Choice
Chapter 3. Mental Accounting
Rational Choice with Income from Varying Sources
The Theory of Mental Accounting
Budgeting and Consumption Bundles
Accounts, Integrating or Segregating
Payment Decoupling, Pre-purchase and Credit Card Purchases
Investments and Opening and Closing Accounts
Reference Points and Indifference Curves
Rational Choice, Temptation and Gifts versus Cash
Rational Choice over Time
Rational Explanations for Source Based Consumption and Application
Thought Questions
Suggested Readings
Chapter 4. Status Quo Bias and Default Options
Rational Choice and Default Options
Preference Formation, Framing and the Default Option
Rational Explanations of the Status Quo Bias
History and Notes
Reference Points, Indifference Curves and the Consumer Problem
An Evolutionary Explanation for Loss Aversion
Rational Choice and Getting and Giving Up Goods
Loss Aversion and the Endowment Effect
Rational Explanations for the Endowment Effect
History and Notes
Thought Questions
Suggested Readings
Appendix: The Shape of Indifference Curves with Constant Loss Aversion
Chapter 5. The Winner’s Curse and Auction Behavior
Rational Bidding in Auctions
Procedural Explanations for Overbidding
Levels of Rationality
Bidding Heuristics and Transparency
Rational Bidding under Dutch and First Price Auctions
History and Notes
Rational Prices in English, Dutch and First Price Auctions
Auction with Uncertainty
Rational Bidding under Uncertainty
The Winner’s Curse and Anchoring and Adjusting
History and Notes
Rational Explanations for the Winner’s Curse
Thought Questions
Suggested Readings
Appendix: Bayesian Nash Equilibrium and Bidding under Uncertainty
Part II. Information and Uncertainty
Chapter 6. Bracketing Decisions
Multiple Rational Choice with Certainty and Uncertainty
The Portfolio Problem
Narrow versus Broad Bracketing
Bracketing the Portfolio Problem
More than the Sum of Its Parts
The Utility Function and Risk Aversion
Bracketing and Variety
Rational Bracketing for Variety
Changing Preferences, Adding Up and Choice Bracketing
Addiction and Melioration
Narrow Bracketing and Motivation
Behavioral Bracketing
History and Notes
Rational Explanations for Bracketing Behavior
Thought Questions
Suggested Readings
Appendix: The Portfolio Problem
Appendix II: Bracketing the Portfolio Problem
Chapter 7. Representativeness and Availability
Statistical Inference and Information
Calibration Exercises
Representativeness
Conjunction Bias
The Law of Small Numbers
Conservatism versus Representativeness
Availability Heuristic
Bias, Bigotry and Availability
History and Notes
Thought Questions
Suggested Readings
Chapter 8. Confirmation and Overconfidence
Rational Information Search
Confirmation Bias
Risk Aversion and Production
Overconfidence
Self-Serving Bias
Is Bad Information Bad?
History and Notes
Thought Questions
Suggested Readings
Chapter 9. Decision under Risk and Uncertainty
Rational Decision under Risk
Modeling Intransitive Preferences: Regret and Similarity
Independence and Rational Decision under Risk
Allowing Violations of Independence
The Shape of Indifference Curves
Evidence on the Shape of Probability Weights
Probability Weights without Preferences for the Inferior
Practical Implications of Violations of Expected Utility
What to Do When You Don’t Know What Can Happen
History and Notes
Thought Questions
Suggested Readings
Appendix 9.A The Continuity Axiom
Chapter 10. Prospect Theory and Decision under Risk or Uncertainty
Risk Aversion, Risk Loving and Loss Aversion
Prospect Theory
Prospect Theory and Indifference Curves
Does Prospect Theory Solve the Whole Problem?
Prospect Theory and Risk Aversion in Small Gambles
History and Notes
Thought Questions
Suggested Readings
Part III. Time Discounting and the Long and Short Run
Chapter 11. Disagreeing with Ourselves: Projection and Hindsight Biases
The Standard Models of Inter-Temporal Choice
Making Decisions for Our Future-Self
Projection Bias and Addiction
The Role of Emotions and Visceral Factors in Choice
Hindsight Bias and the Curse of Knowledge
History and Notes
Thought Questions
Suggested Readings
Chapter 12. Naïve Procrastination
The Fully Additive Model
Discounting in Continuous Time
Why Would Discounting be Stable?
Naïve Hyperbolic Discounting
Naïve Quasi-Hyperbolic Discounting
The Common Difference Effect
The Absolute Magnitude Effect
Discounting with A Prospect Theoretic Value Function
History and Notes
Thought Questions
Suggested Readings
Chapter 13. Committing and Uncommiting
Rationality and the Possibility of Committing
Commitment under Time Inconsistency
Choosing When to Do It
Of Sophisticates and Naïfs
Uncommitting
History and Notes
Thought Questions
Suggested Readings
Appendix A: The Continuous Choice Problem with Backward Induction
Part IV. Social Preferences
Chapter 14. Selfishness and Altruism
Rationality and Altruism
Rationally Selfless?
Selfishly Selfless
Public Goods Provision and Altruistic Behavior
History and Notes
Thought Questions
Suggested Readings
Chapter 15. Fairness and Psychological Games
Inequity Aversion
Fairness
Kindness Functions
Psychological Games
History and Notes
Thought Questions
Suggested Readings
Chapter 16. Trust and Reciprocity
Of Trust and Trustworthiness
Trust in the Marketplace
Trust and Distrust
Reciprocity
History and Notes
Thought Questions
Suggested Readings
Glossary
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