If you buy a $100 concert ticket and lose $100 in cash, they have a gold mine.
You have enough money to pay for the ticket.
Most of them have a flop.
Behavioral economists suggest that because the goods are objectively preferred that people make choices to all other goods, but simply because they have ries, instead of over all catego become focal points to which people have ries.
The gravitated was in the first scenario.
Some people started con ticket and others followed.
It's too much to add another $100 to that mental category.
People decline Given Tastes doing that.
The second assumption is that we prefer the concert category, soences are given and are not shaped by spending another $100.
Our preferences don't add to that "concert", they add to our Stock Photo category.
The term was created by a famous institutional economist.
Veblen found mansions, designer clothing, and $300 Appetizers to be examples of conspicuous consumption.
He argued that male industrialists were so busy with business that they didn't have time to show off enough so they married a trophy spouse who would spend their money in a way that showed off their wealth.
In reality, economists agree that forces other than price and marginal utility play a role in determining what people want.
An analysis of what determines taste is necessary to supplement theirs.
What do you eat today?
It wasn't the most efficient way to satisfy your needs.
The best way to do that is to only eat soybean mush and vitamins at a cost of $300 per year.
The average person spends less than a tenth of what they spend on food each year.
Most of us don't like soybean mush.
It's important that tastes are important.
Some economists have been guilty of forgetting their assumptions.
In the 1800s, some economists thought that society's economic needs would eventually be met and that we would enter a golden age of affluence.
They believed there would be surpluses of everything.
It seems that whenever a need is met, it's replaced by a want, which soon becomes another need.
A small island in the Caribbean is reported to have found examples of wants being temporarily satisfied.
Employees didn't show up for work.
The situation was not good for business, but the firm found a solution.
When Sears sent catalogs, the workers were no longer satisfied with what they already had.
They wanted more when they were presented with new possibilities.
Companies spend a lot of money on advertising to get consumers to like their goods.
Differences in consumption are explained by taste.
A Japanese person wouldn't consider having a meal without rice.
Rice can explain why a change in tastes tastes ceremonial in Japan.
Supper will change the demand curve in many parts of the United States.
In the United States, many people consider a large goldfish to be inedible.
Corn is a desir able vegetable in the United States, but in parts of Europe it was considered pig food.
It's difficult to make good decisions.
In the real world, parents and teachers spend a lot of time on training.
Children's decision-making process is indicative of what teaching is.
Parents and teachers teach more than a decision one makes must be rational, decision-making process; they also teach children a moral but such usage makes the concept tautological--true by code that often includes the value of honor and selfless definition.
Most econo making process when applying the theory of rational choice is to modify their preferences, although not always in the way that mists agree.
They will admit that five-year-olds make ences.
A lot of what most parents would call stupid ences are taught to us in our decision-making process.
If the child had logically processes that were taught, not inherent, they would have caused the child not to judge people's deci make that particular decision.
Eliminating the fixed point makes it difficult to sum up the decisions made by five-year-olds.
We don't analyze tastes in the core of economic theory, but we take them into account.
We distinguished shifts in demand from movements along the demand curve in Chapter 4.
The demand curve was affected by price.
The shift factors of demand are taken into account by economists.
A change in tastes is one of the factors economists include in their analysis.
The third assumption that behavioral economists ask is that individuals maximize their economic choice by getting more for themselves.
Two people are given the chance to split money.
One person can decide how to divide it.
If he wants, he can keep whatever portion he wants, or give 10 cents to the other.
Most of the rational choices would be kept by the first individual, who would give only a small amount to the other.
The other person comes out 1.
Decision making is costless.
There are some things that are given.
People maximize utility.
This is not what happens when people play this game.
The first person usually offers something close to 50%.
The offer is usually rejected in instances where the first person only offers a small amount.
People are willing to pay money to enforce a sense of fairness in their decisions.
When Sweden privatized its social security system, it was an example of this happening in the real world.
The citizens of Sweden were offered 456 funds to invest when they privatized retirement.
One of the funds was offered as a default even though the Swedish government encouraged participants to choose their own portfolio.
33 percent chose the default fund, a far higher percentage than would have been expected if the fund had not been identified as the default.
It is difficult to argue that people are choosing rationally.
Some behavioral economists suggest that policy makers can take advantage of the status quo bias by structuring programs so that choices are framed in ways that lead people to what the policy makers want them to do.
They argue that the policy design does not violate consumer sovereignty because individuals are free to choose.
Behavioral economic insights are changing the face of economics.
The insights should be seen as comple ments to the standard economic reasoning.
The chapter began with a discussion of the economists' analysis of rational choice.
You may be wondering if it's all that easy after you've been through it.
Most of you would agree that it's complicated enough.
I'm in agreement when we're talking about formal analysis.
Most economists agree that the theory of choice is not acceptable if you're talking about informal analysis and applying it to the real world.
There is more to life than maximizing utility.
We believe in love, anger, and doing crazy things for the sake of doing crazy things.
We are real people.
We argue that simplicity has its virtue and that people hide their selfish motiva tions.
They're probably partially right, but often hide their interest theory of choice because it cuts through many obfuscations and obscures their self-interested motives.
The beauty of doing so is that it captures a part of reality that others miss.
Let's look at a few examples.
Many of the restrictions do little to protect the public.
The museum directors' answer is that they're out to preserve our artistic heritage.
The traditional economic answer is to maximize the utility of the museum staff.
He supported his argument that more than half of museums' art is in storage and not accessible to the public.
Approaching problems by asking the Now is not the way to go about it.
It gets people to ask tough questions.
You can see how to modify the conclusions by looking into the real-world institutions after you've asked the tough questions.
Economics and economic reasoning are often thought of as establish ment reasoning by students.
Economic reasoning can be very offensive to existing establishments.
Whatever it is, it is not pro establishment in order to be subver sive.
It's a logical application of a simple idea.
The law of demand is based on the income effect and the consumption of a product; marginal utility is the substitution effect.
When the price of a product increases, the income effect is the reduction in tion obtained from consuming one additional unit quantity.
The principle of diminishing marginal utility states in quantity demanded when price rises is called the substitution effect.
The principle of rational choice can be used to derive the law of supply.
The law of demand can be derived from the principle foundations of behavioral economics.
If you're in equilibrium and the price of a good rises, fairness as well as total income, the ultimatum game suggests that people care.
The status quo bias suggests that actions are based on perceived equilibrium.
Answer the questions below and complete the table of Scout's utility from drinking cans of soda.
If the price of B goes up, how will the answer change?
Tell me your answer.
The total utility of your consumption is 40; it changes by 2 with each change.
A, B, and C are three goods and the price of them is $2.
A $10 200 380 530 630 680 700 630 430 utility concept explains why it is not a paradoxes.
Explain how the law of demand relates to the principle of rational choice.
Explain how the law of supply relates to opportunity cost.
Does the utility from the consumption of these goods come from the price?
You can give an example of a good.
The price of a calzone could go up to $10
If you are compensated, your study partner will tell you.
Questions from Alternative Perspectives 1.
The book suggests that the decisions are economic.