Behavioural Economics and Experiments

✍ Scribed by Ananish Chaudhuri

• Publisher: Routledge
• Year: 2021
• Tongue: English
• Leaves: 459
• Edition: 1
• Category: Library

✦ Synopsis

Behavioural Economics and Experiments addresses key topics within behavioural economics, exploring vital questions around decision-making and human nature. Assuming no prior knowledge of economics, the book features wide-ranging examples from literature, film, sport, neuroscience and beyond.

Ananish Chaudhuri explores the complex relationships between human behaviour, society and decision-making, introducing readers to the latest work on heuristics, framing and anchoring, as well as ideas around fairness, trust and social norms. The book offers a fresh perspective on issues such as:

• Decision-making under uncertainty

• Firms’ pricing decisions

• Employment contracts

• Coordination failures in organizations

• Preventing bubbles in financial markets

This is an ideal introduction for students of behavioural economics, experimental economics and economic decision-making on economics, public policy, psychology and business-related programmes, and will also be accessible to policymakers and curious laymen.

✦ Table of Contents

Cover
Half Title
Title Page
Copyright Page
Dedication
Table of Contents
Descriptive contents
List of figures
List of tables
Acknowledgements
Preface
Chapter 1 How we decide
Introduction
Descartes’s error?
How do economists and psychologists approach decision making?
Infusing psychology into economics: the guessing game
Types of decision making
Ana’s problem of choice
Ana cannot buy everything she wants; her choices are constrained
Ana knows what she can afford, but how does she choose among these?
Ana knows what she can afford and how she should choose. What should she buy?
Two examples of how to use this tool
How realistic is this “normative” model? Let’s look inside the brain
Concluding remarks
Notes
Chapter 2 Experiments in behavioural economics
Introduction
The rise of experimental economics
Elements of experimental design
A brief history of experimental economics
Experiments in economics and psychology: similarities and differences
Criticisms of experimental economics
In lieu of a conclusion: experimental economics: the path forward
Notes
Chapter 3 Gut feelings and effortful thinking
Introduction
The power of gut feelings, or System 1 thinking
Limits to System 1 thinking and the need to engage System 2
Why do we need to worry about Systems 1 and 2?
Choice over time: smaller–sooner versus larger–later rewards
Concluding remarks
Notes
Chapter 4 Expected utility theory and prospect theory
Introduction
Risk neutrality and risk aversion
The Allais Paradox
Prospect theory
Explaining the paradoxical behaviour in Allais and elsewhere
Loss aversion, mental accounting and the endowment effect
Loss aversion and overconfidence
Concluding remarks
Notes
Chapter 5 Probabilistic thinking
Introduction
Probabilities are dicey and often hard to get our heads around
One further detour on the way to the jury decision-making problem
Back to the jury decision-making problem
Michael Bloomberg’s stop-and-frisk policy
Indira, the mature mother
Dependent or independent? Connected or unconnected? Conjunctive and disjunctive fallacies
Regression to the mean
Concluding remarks
Notes
Chapter 6 Thinking strategically
Introduction
The prisoner’s dilemma
Yossarian and Nately’s choices revisited
Prisoner’s dilemma in the animal world
Tit-for-tat strategies in prisoner’s dilemma games
Let us talk of Yossarian and Nately one last time
Men are from Mars, women are from Venus: battle of the sexes
Battle of the sexes: the game played by Della and Jim
Hunt a stag or a rabbit? The stag hunt game and pay-off-ranked equilibria
Please, why don’t you go first? Games where players move in sequence
Concluding remarks
Notes
Chapter 7 The ultimatum game
Introduction
The ultimatum game
Intentions, as well as outcomes, matter
Criticisms of the findings of Güth and his colleagues
Behaviour in the ultimatum game: fairness or altruism?
Raising the monetary stakes in the ultimatum game
Fear of punishment or fear of embarrassment?
Do norms of fairness differ across cultures?
An even more ambitious cross-cultural study
Concluding remarks
Notes
Chapter 8 Market implications of the ultimatum game
Introduction
Fairness as a constraint on profit-making
Economic consequences of norms of fairness
Fairness and inequality
Concluding remarks
Note
Chapter 9 Trust and trustworthiness in everyday life
Trusting strangers
Is trust nothing but altruism? How about reciprocity?
The role of expectations in the decision to trust
Is a trusting decision analogous to a risky one?
Do trust and trustworthiness go together?
Does trust pay?
Concluding remarks
Notes
Chapter 10 Trust and trustworthiness in markets
Introduction
Trust and trustworthiness in agency relationships
Further economic implications of fairness and trust
The Grameen Bank experience
Extrinsic incentives can crowd out intrinsic motivations
Intrinsic motivations, sustainability and climate change
Extrinsic incentives and crowding out of intrinsic motivations
Trust and growth
Concluding remarks
Notes
Chapter 11 Cooperation in social dilemmas
An example of a social dilemma
Are smaller groups better at addressing collective action problems?
Are contributions caused by confusion on the part of the participants?
Looking for alternative explanations
Do participants display a herd mentality?
Turning the prisoner’s dilemma into a stag hunt game
Concluding remarks
Notes
Chapter 12 The carrot or the stick: Sustaining cooperation in social dilemmas
Introduction
Sustaining social norms by punishing free-riders
On the cost effectiveness of costly punishments
The possibility of “perverse” punishments
Are punishments more effective in the long run?
The “verdict” on costly punishments
Sustaining cooperation via means other than punishments
Sustaining cooperation in non-sorted groups
Cooperation in sorted groups
An intergenerational approach to cooperation
Concluding remarks
Notes
Chapter 13 I will if you will: Resolving coordination failures in organizations
Coordination failures in real life
Experimental evidence on coordination failures
The minimum effort coordination game
Talk is cheap; or is it? Using communication to resolve coordination failures
Money talks: the role of incentives
When in Rome … creating culture in the laboratory
From the laboratory to the real world: do these interventions work? The story of Continental Airlines
From the real world, back to the laboratory: are you partners or strangers?
Concluding remarks
Notes
Chapter 14 Behavioural analyses of markets
Introduction
Demand
Supply
The theory of competitive equilibrium
Consumer and producer surplus
But … does it work in real life?
Robustness of the market equilibration process
Posted offer markets
Posted offer markets and market power
Fairness in posted offer markets revisited
Policy interventions in markets
Concluding remarks
Notes
Chapter 15 Asset bubbles in markets
Introduction
Studying asset bubbles in the lab
I don’t understand why the fundamental value is declining!
Rational speculation and the role of expectations
Unleashing (and leashing) our animal spirits
Passions within reason: the role of experience in curbing bubbles
Concluding remarks
Notes
References
Index