Erik Angner's A Course In Behavioral Economics PDF

By Erik Angner

A path in Behavioral Economics 2e is an available and self-contained advent to the sector of behavioral economics. the writer introduces scholars to the topic through evaluating and contrasting its theories and versions with these of mainstream economics. choked with examples, routines and difficulties, this publication emphasises the instinct in the back of the techniques and is acceptable for college students from a variety of disciplines.

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Example text

But if you know that the utility I derive from listening to Arcade Fire is 4, you know something, namely, that I strictly prefer Arcade Fire to Justin Bieber. It is equally important not to ascribe any significance to ratios of utilities. " The same preferences could be represented by the numbers O and 42, in which case the ratio would not even be well defined. In brief, for every given preference relation, there are many utility functions representing it. Utility as used in this chapter is often called ordinal utility, because all it does is allow you to order things.

Once the additional investment has been made, unless it turns the project around, people find themselves with an even greater sunk cost, which is even harder to ignore, thereby encouraging even greater investments. The sunk-cost fallacy and escalation behavior are often invoked when explaining why the US spent so many years fighting a losing war in Vietnam. According to this analysis, once soldiers were committed and started dying, it became impossible to withdraw for fear that the dead would have "died in vain"; thus, more soldiers were comrnitted, more soldiers died, and it became even harder to withdraw.

When the set of alternatives is finite, the answer is yes. The question is answered by means of a so-called representation theorem. If the set of alternatives is finite, then >,:: is a ratio11a/ preference relation just in case there exists a utility f11nctio11 representing >,:=. 30 Representation theorem D Proof. Omitted. When the set of alternatives is infinite, representing preference relations gets more complicated. It remains true that if a utility function represents a preference relation, then the preference relation is rational.

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A Course In Behavioral Economics by Erik Angner

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