Behavioral EconomicsCombining Psychology & Economics

Rational Behavior?Traditional economics is based on the assumption that people make rational decisions where the MB ≥ MC

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11 min. Rational Behavior Video http://video.pbs.org/video/1479100777

Start at 4:30 minutes…

Behavioral Economics• Study of the social, cognitive & emotional factors which

influence economic decisions making. • Uses psychology to predict & test human behavior

Irrational Behavior?

Should Gov’t “nudge” people?

Econs vs. Humans Areas to nudge people

BEHAVIORAL ECONOMICS Re-cap

People often make irrational decisions

But these irrational decisions are predictable

People can be “nudged” to make better decisions (or worse!)

System 1 vs. System 2 Decision Making

https://www.youtube.com/watch?v=KyM3d4gQGhM

Reading:

The Truth about Relativity

http://danariely.com/videos/

1) World as it really is?

Ted Video (17 minutes)

http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html

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Ted Video Recap

http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html

Cognitive Physical Limitations vs. Limitations

Behavioral Economics Recap

1) We can’t compute the value of something alone

2) We make decisions by comparing options• We need context => everything is relative• Our decisions change by what we compare

3) We avoid hard comparisons=> • we seek things that are easy to compare

4) We admit physical limitations but not cognitive limitations

5) Irrational behavior is predictable • It occurs over & over again => we are robotic

Got Awareness?

• http://www.youtube.com/watch?v=Ahg6qcgoay4

AP Econ Course Review

Always someplace else?

• http://pulptastic.com/video-spreading-online-like-wildfire-see/

Is College Worth It?

http://finance.yahoo.com/blogs/daily-ticker/the-real-reasons-the-high-cost-of-college-is-threatening-society--filmmaker-145424431.html