Behavioral Economics at Hochschule Furtwangen

Flashcards and summaries for Behavioral Economics at the Hochschule Furtwangen

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Study with flashcards and summaries for the course Behavioral Economics at the Hochschule Furtwangen

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Name 6 Principles of Behavioral Economics

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Principle 1: People Try to Choose the Best Option

Exemplary flashcards for Behavioral Economics at the Hochschule Furtwangen on StudySmarter:

Principle 2: People Care About Reference Points

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Exemplary flashcards for Behavioral Economics at the Hochschule Furtwangen on StudySmarter:

economic theory 

Exemplary flashcards for Behavioral Economics at the Hochschule Furtwangen on StudySmarter:

Behavioral economics

Exemplary flashcards for Behavioral Economics at the Hochschule Furtwangen on StudySmarter:

main focus of behavioral economics

Exemplary flashcards for Behavioral Economics at the Hochschule Furtwangen on StudySmarter:


One of the most important and applicable tools of economics

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Present Bias

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Evidence of Present Bias

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standard economic model bassed on

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Behavior frequently explained by psychological factors

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behavioral economics

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Exemplary flashcards for Behavioral Economics at the Hochschule Furtwangen on StudySmarter:

Behavioral Economics

Name 6 Principles of Behavioral Economics

  • People Try to Choose the Best Option (People sometimes don’t succeed in choosing the best feasible option)
  • People Care About Reference Points (People compare their circumstances to known situations)
  • People Have Self-Control Problems (There is a gap between people’s good intentions and actions)
  • People Care About Others (People mostly care about themselves but not always)
  • Many Markets are Affected ba Psychological Factors (Although markets can make psychological factors less relevant)
  • Limit People Choices Might Make Them Better Off (But paternalism is not always the solution and it is unpopular)

Behavioral Economics

Principle 1: People Try to Choose the Best Option

People try to decide optimal -> make mistakes -> those mistakes are partially predictable 

Behavioral Economics

Principle 2: People Care About Reference Points

Reference Points could be the amouunt of money a person expect to earn -> what matters are gains and losses in relation with this reference point -> in general losses weigth more -> Loss Aversion -> discourge market transaction due to fear of failing/losing


Consequence: Endowment Effect

Behavioral Economics

economic theory 

normative tool (what
should be)


Behavioral Economics

Behavioral economics

economic
analysis considering a more realistic description of actual behavior

Behavioral Economics

main focus of behavioral economics

overtaking the role of bounded rationality and
information deficiencies

Behavioral Economics


One of the most important and applicable tools of economics

demand function

Behavioral Economics

Present Bias

The tendency of people to give stronger weight to payoffs that are closer to the present time when considering trade-offs between two future moments (O’Donoghue & Rabin, 1999). For example, a present-biased person might prefer to receive ten dollars today over receiving fifteen dollars tomorrow, but wouldn’t mind waiting an extra day if the choice were for the same amounts one year from today versus one year and one day from today

Behavioral Economics

Evidence of Present Bias

  • People pay to not go to the gym
  • Consumers overestimate their discipline to exercise or use their selected plan as commitment device
  • If given the chance students select stricter deadlines for their homeworks
  • The selection of deadlines increase performance (commitment
    device) but the allocation of the deadlines is not optimal
    (overestimation of abilities)

Behavioral Economics

standard economic model bassed on

concept of rationality.

Behavioral Economics

Behavior frequently explained by psychological factors

  • Philanthropy, charities and donations
  • Unhealthy behavior with clear future consequences
  • Overoptimistic and inconsistent investment strategies
  • Overconfidence in own abilities
  • Disadvantageous cost-benefit analysis in retaliation

Behavioral Economics

behavioral economics

descriptive tool (what
is)

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