BE 6: Heuristics

  • Created by: charlie
  • Created on: 04-05-18 12:32
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) Heuristics
People make choice via heuristic (rules of thumb/ over/ underweight) as it isnt possible to max utility (info + option amount/ memory + attention limited)
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Types of Heuristics (1) Representativeness
subjective probability of event determined by how much is represents parent population and salient features of the process
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Types of Heuristics (2) Availability
subjective probability of event determined by how easily brought to mind (overestimate probabilities of these)
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Types of Heuristics (3) Anchoring
(Relative thinking): rely too heavily on first piece of info when making decision
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Selective memory + attention: definitions
Selective memory: only sufficiently available info remembered (Rep. + Avail.)/ Selective attention: salient dimensions receive more attention (Rep. + Anch.)
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Selective memory + attention: decision process
1) Choice problem 2) Selective recall of info 3) Choice set formed (selective memory) 4) Choice set evaluated (selective attention)
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Selective memory + attention: Model
.
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Selective memory + attention: Comparative stats (hidden feature)
.
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Selective memory + attention: Consumer demand (+ve correlation with perceived value)
Consumer demand (weakly increases for hidden feature/ weakly decreases for hidden cost)
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Selective M + A empirics: Selective memory (0/1): inattention to taxes
Explicitly stating post tax price reduces quantity sold (taxes are hidden cost + assume no inattention)
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Selective M + A empirics: Selective memory (0/1): inattention to taxes D-I-D
.
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Selective M + A empirics: Selective memory (0/1): inattention to shipping costs
Disclosing low shipping costs increase demand (sig) + Shrouding low shipping costs reduces demand (sig) (as shipping costs increase become optimal to shroud)
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Selective M + A empirics: Selective attention (0->1): Inattention to news
Share price for company increased significantly when 'cure for cancer' featured on front page of NYT (despite no new info from initial release)
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Selective M + A empirics: Selective attention: (0->1): Inattention to right digits
Large discontinuities in perceived value of a car when jumping from (e.g. 69,999 to 70,000 miles)
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Selective M + A empirics: Selective attention (0->1): Inattention to right digits: perceived car value model
.
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Other types of Heuristics: Menu effects
Decision via heuristic when set of options is too large/ theres an option to make several decisions
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Menu effects (1) Excess diversification
Pick more than 1 option: Diversify excessively when choices are not exclusive/ close substitutes (e.g. simultaneous choice picking one snack out of 6 for each of 3 weeks)
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Menu effects (2) Choice avoidance
Too many choices: Refuse to choose as you dont know how to optimise (e.g. more jam jars to sample meant less people actually bought them)
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Menu effects (3) Preference for the salient
Too many choices: prefer what stands out (salient) even if irrelevant (e.g. uniformed votes choose 1st candidate from list of minor parties on ballot paper)
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Menu effects (4) Confusion
Too many choices: error in implementing choice/ preference (unable to predict) (e.g. mis-voting on ballot paper if non-popular candidate placed next to more popular candidates/ holds for layout changes)
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Other cards in this set

Card 2

Front

Behavioural patch: 1) Heuristics

Back

People make choice via heuristic (rules of thumb/ over/ underweight) as it isnt possible to max utility (info + option amount/ memory + attention limited)

Card 3

Front

Types of Heuristics (1) Representativeness

Back

Preview of the front of card 3

Card 4

Front

Types of Heuristics (2) Availability

Back

Preview of the front of card 4

Card 5

Front

Types of Heuristics (3) Anchoring

Back

Preview of the front of card 5
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