BE 5: Framing

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  • Created by: charlie
  • Created on: 02-05-18 12:02
Neoclassical puzzle: Quasi-utility maximisation
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)
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Framing of acts + contingencies empirics: Integrating + repeated gambles (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
1) Token payments (foreign currency/ chips) 2) Mental pre-payment (family time/ taxi) 3) Fixed-fee pricing (transport/ phone) 4) Credit cards anomaly
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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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Behavioural patch: 1) Framing

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Different presentations of X yield different outcomes (wording, partition, aggregation...), also dependent on emotional state

Card 3

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Behavioural patch: 1) Framing: Making a decision

Back

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Card 4

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Framing of acts + contingencies empirics: framing of acts

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Card 5

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Framing of acts + contingencies empirics: framing of contingencies

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