An Introduction to Behavioral Economics
Nick Wilkinson
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Richmond, The American International University in London
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List of Tables and Figures xv Preface xvii Acknowledgements xx
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Part I Introduction
1 Nature of Behavioral Economics 3
I. I Behavioral economics and the standard economic
model 4
What is behavioral economics? 4
The standard economic model 5
Shortcomings of the standard economic model 7
Evaluating theories 8
1.2 History and evolution of behavioral economics 10
The classical and neoclassical approaches 10
Post-war economic approaches 11
The resurgence of psychology 11
Behavioral economics, experimental economics, and
neuroeconomics ' 12
1.3 Methods 14
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Economists" methods 14
Psychologists' methods J 15
Methodological issues 16
Consilience 21
Reductionism 23
1.4 Objectives, scope, and structure 25
Objectives 25
Evolutionary psychology 25
Normative /aspects 27
Structure, 28
1.5 Summary 29
1.6 Applications 29
Ca 1.1 Loss-aversion in monkeys 30 Ca 1.2 Money illusion 32 Ca ^.3 Altruism 35 Part II Foundations
2 Values, Attitudes, Preferences, and Choices 39
2.1 The standard economic model 41
Consumer behavior 41
Preferences 41
Indifference curves 42
Equilibrium 42
2.2 Axioms, assumptions, and definitions 44
Axioms 44
Assumptions 45
Definitions s 47
2.3 Weakness of the standard economic model 49
Happiness is a three-act tragedy 49
Discrepancies between objective caus and subjective
*' effects 50 Expectations effects 51
Addiction and abstention 51
Endowment effects 52
Framing effects 53
2.4 NatureM utility 54
Historical evolution 54
Cardinal and ordinal utility 55
Decision utility 55
Experienced utility * 58
Endowment and contrast effects 58
Anticipatory utility 61
Residual utility , 61
Diagnostic utility ' 62
2.5 Measurement of utility 62
Total utility and objective happiness 62
Dimensions of utility 63
Criteria for measurement 64
2.6 An expected psychological utility model 68
Foundations in evolutionary neurobiology 68
Nature of the model 69
UUNItNIS VII 2.7 Policy implications 70
密云旅游景点大全Jury awards of punitive damages 70 The Contingent Valuation Method (CVM) and public goods 72 Crime and Punishment 73 2.8 Summary 75 2.9 Applications 76 Ca 2.1 When abstention is better than moderate consumption 76 Ca 2.2 Environmental protection 80 Ca 2.3 Anti-Social Behaviour Orders (ASBOs), punishment
and happiness 81
Decision-Making under Risk and Uncertainty 3.1 Background
Expected utility theory
Anomalies in expected utility theory
3.2 Conventional approaches to modifying expected
utility theory >
Weighted utility theory
Disappointment theory
Betweenness models
Nonbetweenness models
Decision-weighting theories得偿所愿
Rank-dependent expected utility theory
Conclusions
3.3 Prospect4heory,
Editing
Evaluation
3.4 Reference points
Nature
湘江评论
Psychological foundation '
Empirical evidence
3.5 Loss-aversion
Nature j ' Psychological foundation
Empirical evidence
3.6 Shape of the utility function
Nature
Psychological foundation
Empirical evidence
3.7 Decision weighting
Nature
84 86 86 90
93 93 93 94 94 95 96 97 98 99 100 102 102 103 104 105 105 106 106 108 108 111 112 114 114
VIM CONTENTS
Psychological foundation
Empirical evidence
3.8 Criticisms of prospect theory
Lack of normative status儿童猜字谜
天猫商城女鞋
\ The nature of the utility function
The determination of reference points
Endowment effects and experience in the market
The discovered preference hypothesis and
misconceptions
The nature of framing effects
3.9 Conclusions
Violations of monotonicity
Violations of transitivity
Event-splitting effects
Other factors
3.10 Summary
3.11 Applications
Ca 3.1 The endowment effect
Ca 3.2 Innsitivity to bad income news
Ca 3.3 Fears of terrorist attacks
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4 Mental Accounting
4.1 Nature and components of mental accounting
4.2 Framing and editing
Implications of prospect theory
Hedonic editing
Evaluation of outcomes and decision-making
4.3 Budgeting and fungibility
Consumption budgeting
Income budgeting
Wealth budgeting
Time budgeting
Policy implications i
4.4 Choice bracketing and dynamics '
Opening and closing accounts
Prior outcome effects
Myopic Loss-Aversion (MIA)
The diversification heuristic
4.5 Summary
4.6 Applications
Ca 4.1' The eauitv premium puzzle 120
123
127
127
128
129
130
131
134
137 j 137
138
139 : 139 ' 141 | 143 | 143 I 145 ; 146
149
150
150
150
151
155 ; 157
158
160
161 ! 164
164
167
168 ! 172
173 ! 175 ! 176
177 •178
Ca 4.2 Why you can't find a cab on a rainy day? 181 Ca 4.3 Consumer spending and housing wealth 184 Part III Intertemporal Choice
5 The Discounted Utility Model 189
5.1 Introduction 190
5.2 Origins of the discounted utility model 190
John Rae and the desire for accumulation 191
Two different approaches 191
Bohm-Bawerk and trade-offs 192
Irving Fisher and indifference curve analysis 192
Samuelson and the discounted utility model 193
5.3 Features of the discounted utility model 194
Integration of new alternatives with existing plans 195
Utility independence 195
Consumption independence 195
Stationary instantaneous utility 196
Stationary discounting 196
Constant discounting 197
Independence of discounting from consumption 197
Diminishing marginal utility and positive time preference 198
5.4 Methodology 198
Types of empirical study 199
Methodological issues 203
Calculation of the discount rate 205
5.5 Anomalies in the Discounted Utility Model 206
The "sign effect" 206
The "magnitude effect" 207
The "delay-speedup" asymmetry 208
Preference for improving quences ° 208
The "date/delay effect" 209
Violations of independence and preference for spread 210
Implications of anomalies J ^ 11
5.6 Summary ^ 212
5.7 Applications 213
Ca 5.1 Empirical estimates of discount rates 213 6 Alternative Intertemporal Choice Models 218
6.1 Time preference 220
Consumption reallocation 220
Intertemporal arbitrage Tl§
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