Behavioral eco-lect2: Decision making under certainty part 4 (Heuristics…
Behavioral eco-lect2: Decision making under certainty part 4
Measuring the endowment effect in the field
The endowment effect does not always hold
example:of the money bills in your wallet. You should be indifferent between trading a €20 bill for another €20 bill…
Other evidence comes from a
‘natural field experiment’
where it is shown that professional traders of baseball memorabilia suffer less from the endowment effect, the more experience they have as being a trader (i.e. trading different things than the baseball memorabilia used in the experiment).
Heuristics and biases
: a rule of thumb
(Not part of the course, but it could make you a happier person):
When thinking of a problem, our brain sometimes uses shortcuts instead of computing probabilities and utilities --> efficient for our brain, but sometimes it can lead to predictable mistakes.
The fundamental attribution error:
in contrast to interpretations of their own behavior, people place undue emphasis on internal characteristics of the agent, rather than external factors, in explaining other people's behavior
The reason could be because subjects only have time to calculate the first three or four numbers, and then don’t adjust enough upward.
When done under time pressure, subjects estimate the outcome of the math question 1x2x 3x 4x 5 x 6 x 7 x 8 lower than the outcome of 8x7x6x5x4x3x2x1
When people have to make an estimation under uncertainty, an anchor can influence the person making the estimation.
initial value or estimate
Scientific procedures to test this are usually done as follows:
Subjects are presented with an irrelevant number
Subjects are then asked if their estimate is greater or smaller than the irrelevant number.
Finally, subjects are asked their true estimate.