University:
Loyola Marymount University
Course:
ECON 1050 | Introductory Economics
Academic year:

2023
Views:

163

Pages:

2
Author:

fleamstigmatics

CH 8 smartbook notes ● The branch of economics that combines insights from economics, psychology, and biology is behavioral economics ● Compared to neoclassical economics, behavioral economics is better able to make predictions about behavior. ● Neoclassical economics focuses on providing people with more options to improve welfare ● Why people use heuristics - There are diminishing marginal returns for using additional brain power, Too many resources are required to be perfect, The opportunity cost of perfection is too high. ● Behavioral economists find it important to concentrate on the mental process of decisions - It allows for better predictions about behavior, It helps us guide people to make better decisions. ● Behavioral economists focus on improving outcomes by improving decisions, while neoclassical economists focus on giving people more options ● System 1 - gut feeling ● Heuristics - are low-energy mental short cuts. ● Cognitive bias occurs when a misrepresentation results in systematic errors. ● Framing effect - Additional information about the same situation causes a different reaction; ● Cognitive bias - when misunderstandings result in systematic errors ● Prospect theory deals with how consumers plan for and deal with life's ups and downs. ● effects impact whether consumers view a situation as a gain or loss thereby altering consumption choices ● Confirmation bias - cognitive bias refers to the human tendency to pay attention only to information that agrees with one's preconceptions ● Anchoring - he phenomenon where irrelevant information unconsciously influences people's feelings about the status quo ● Evaluating consumption options in isolation rather than simultaneously is referred to as mental accounting ● The endowment effect - The tendency of people to put a higher valuation on anything that they currently possess than on identical items that they do not own ● Time inconsistency - When your present self does not understand what your future self will want CH 8 lecture ● Rationality - assume people choose what makes them happy over what makes them sad ● Goal: get the most possible happiness per dollar ● Diminishing marginal utility - look at total and marginal utility ● Utils are different for everyone ● Total utility is the sum of all the marginal utility ● Theory of consumer behavior assumptions: rationality (most utils per dollar), known preferences, budget constraint, known prices - pricetaker ● Utility maximizing rule, consumers are going to try to balance their margins for the last dollar spent

Introductory Economics Chapter 8 Lecture Notes

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