Behavioral eco-lect 1: Introduction part 4 (Methodology (NO DECEPTION…
Behavioral eco-lect 1: Introduction part 4
Do people maximize utility? Some phenomena which show that decision utility and experienced utility may not coincide:
Duration neglect and peak-end rule
: people project their current preferences onto their future selves.
Example: groceries on an empty stomach
see slide 41/53
According to projection bias our choices for the future depend too little on what our preferences will be in the future and too much on what our preferences are currently.
: people overestimate the degree to which they will like variety in the future.
see slide 42/53
Duration neglect & peak-end rule
retrospective evaluations of past episodes are relatively insensitive to variations in duration.
people rank past episodes based on their peak and their end only.
end = intensity at the end of the episode
see book p 208-209
peak = highest intensity measured during the episode
See slide 44/53 for example
Types of experiments
: subjects make decisions in a controlled environment.
some experiments have only one treatment
others compare several treatments – if subjects are assigned to treatments randomly, any difference in behavior between treatments must then be due to the difference in treatment.
: subjects in their natural environments.
In case experiment has several treatments, need to choose a
type of design:
: each subjects is in only one treatment.
: each subject is in both/all treatments.
Most economists use
in their experiments: subjects are really paid according to (one of) their choices.
reduce the risk of subjects not making decisions that reflect their true preferences (for instance if they do not put in any effort in reading the questions).
can also reduce the risk of subjects making choices that are socially desirable, but do not reflect their true preferences.
Economists do not use deception in their experiments.
This reduces the risk of subjects not taking the instructions in
experiments seriously or not trusting them.