Behaviour Economics

Notes

Seminar 2

How to measure Belief?

Sure-Thing Principle

Hot-Hand Fallacy

Gambler’s Fallacy

BEHAVIOURAL WELFARE ANALYSIS AND SUBJECTIVE MEASURES OF WELL-BEING

Behavioural Welfare Analysis and Subjective Measures of Well-Being

Neuroeconomics

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• Behaviour Econ → Problem Set 1
• Behaviour Econ → Problem Set 3
• Behaviour Econ → Problem Set 4
• Behavior Econ → Formative Assessment

Lecture 1 Choice Under Risk

How to choose under Uncertainty

Choice Between Lotteries

A lottery is a probability distributions over prizes.

In economics, we assume that people have preference over the over lotteries and choose by maximizing these preferences

For example, from the menu $\{L_1,L_2\}$, you choose $L_1$, that means you prefer $L_1$

What is a preference?

Two Properties of Preferences

• Completeness:

• Transitivity:

• Expected Utility

• Prospect Utility

Lecture 3 Other-regarding preferences

People’s opinions about our actions. And we follow and expect people follow the Social Norm

The simple framework

Opinions like $O_A$ for each pair $(a,b)$ and

• $O_A(b|a)$ is Alice’s opinion about Bob choosing ‘b’ when she chooses ‘a’.
• Same as Bob.
• Can also write as: $O_A(a|b)$ is Alice’s opinion about herself choosing ‘a’ when Bob chooses ‘b’. It is similar to the notation in the Statistics MOC .
• If $O_X=-1$, so X will thinks someone unkind.

Simple example: Prisoner’s …

Now lets change to the Utility.

1. We care about the payoffs of others

Alice’s utility of $(a,b)$ depends on both $A(a,b)$ and $B(a,b)$. For example, Alice dislikes inequality between Alice and Bob.

2. We care about the well-being of others

3. We care about our opinions about the actions of others.

4. We care about the others’ opinions about our actions.

5. We care about our own intentions.

• Alice’s utility of $(a,b)$ depends on $A(a^{\prime },b)$, $B(a^{\prime },b)$ and $O_A(a^{\prime }|b)$

4. We care about the intentions of others
5. We care about if we violate the Social Norm
6. We care about if others violate.

The Ultimatum Game

Why we give high offers?

3 Explanations

We have some restrictions in the settings in the lab experiment.

• The people in the lab experiments can not represent every person in the field.

Avoiding ask!!!