Ruling out non-standard beliefs (Lecture 3) or non-standard utility (Lectures 1 +2) people still don't maximise utility
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Behavioural patch: 1) Framing
Different presentations of X yield different outcomes (wording, partition, aggregation...), also dependent on emotional state
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Behavioural patch: 1) Framing: Making a decision
Rational: decision problem (presentation doesnt matter)/ Behavioural: decision frame (conceptualisation of decision problem depending on presentation)
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Framing of acts + contingencies empirics: framing of acts
Prospect theory (loss aversion) + Presentation of options matters (separate in terms of loss/gain or aggregate giving same options)
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Framing of acts + contingencies empirics: framing of contingencies
Prospect theory (loss aversion) + Presentation of probabilities matters (separate in terms of 'sure win' or 'p(win) 1st stage or aggregate giving same probabilties)
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Framing of acts + contingencies empirics: Samuelson's coin flip (MLA)
People evaluate choices (acts) within set of narrow brackets (small suboptimal decisions at expense of broader gain due to MLA)
(1) Integrating (giving outcome distribution) people choose longer horizon/ more oprimal (2) Repeated gambles with same E(r) + distribution = when shown distribution will choose longer horizon
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Framing of acts + contingencies empirics: Equity premium puzzle (MLA)
Excessively high premium required for investing in equities when LT p(loss) on equities is very small
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Framing of outcomes (MLA)
Very similar to framing of acts (options) as individuals are loss averse (Prospect theory) and myopic (narrow framing)
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Framing of outcomes: mental accounts
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Framing of outcomes: mental accounting neoclassical model
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Framing of outcomes: mental accounting neoclassical model predictions
1) Individuals prefer later payments 2) choice of financing (now/later) is independent of product type
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Framing of outcomes: mental accounting behavioural model
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Framing of outcomes: mental accounting behavioural model imputed costs/ benefits
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Framing of outcomes: mental accounting behavioural model predictions
1) Individuals prefer 'black accounts' (+ve) + prepayments (loss aversion + imputation) 2) choice of financing is dependent on consumption structure of purchases (holiday vs fridge) 3) offset by time preference/ consumption pleasure/ payment pain
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Framing of outcomes: mental accounting prepayment examples
Framing of outcomes: mental accounting implications
1) Narrow bracketing (myopic) as evaluate mental account each period and not joint with past utility 2) Suboptimal (prepayment vs IR)
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Framing of outcomes empirics: mental accounting in NYU Law school
Students bracket their debt narrowly (separate accounts during Uni + After Uni)/ IFAS (scholarship) students more likely to go into public sector as experience 'less' debt during studies (despite overall debt after uni identical)
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Other cards in this set
Card 2
Front
Behavioural patch: 1) Framing
Back
Different presentations of X yield different outcomes (wording, partition, aggregation...), also dependent on emotional state
Card 3
Front
Behavioural patch: 1) Framing: Making a decision
Back
Card 4
Front
Framing of acts + contingencies empirics: framing of acts
Back
Card 5
Front
Framing of acts + contingencies empirics: framing of contingencies
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