Tag Archives: Behavioral Economics

The Irrationality of Free

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One of the books I’ve been reading for Economics of Happiness, the best connections class to make you happy (maybe except for the wine-tasting one) is Predictably Irrational by Dan Ariely, who examines some of the incentives and day-to-day interactions we have, how they affect our decisions, and more specifically, how they nudge us towards irrational decisions. One idea that we can’t deal with very well is the idea of free, or costing zero. If something is free, or costs zero, our decision making about that thing changes considerably. Predictably Irrational discusses how when presented with an otherwise great deal Continue reading The Irrationality of Free→

SUB(stituting)?

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If you’ve spent any time at UPS, you’ve probably thought at some point, “Is there actually going to be anything good at the SUB today, or should I go off-campus?” While the connection between economics and going to the SUB may not be clear, just remember that economics is the study of how people make choices. I’m currently taking an Economics of Online Dating class (Econ 341), which has a large focus in economic model building. A couple weeks ago, we were asked to create a model of decision-making under risk. Risk is defined as a situation in which all possible outcomes and Continue reading SUB(stituting)?→

Reflection on The Why Axis: the Role of Time Discounting in the Education Gap.

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Two eeks ago I wrote about chapter 4 of The Why Axis. I hope you continue (or begin) to read along with us as we make our way through the book and enjoy it as much as we are! The authors do a great job relaying some tricky behavioral economic ideas while they tackle profound topics in a fun way. One such topic, the gap in childhood education between inner city kids and many wealthy even simply middle class kids, was central in the fourth chapter. I found Gneezy’s and List’s discussion provoking and I have given some thought to Continue reading Reflection on The Why Axis: the Role of Time Discounting in the Education Gap.→

We Performed a Free Money Experiment, Results: Very Few Takers

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Last Friday fellow blog writer Janne and I decided to run a little experiment. The idea was simple enough: offer free money to everyone and see if they take it. The results were not so simple: hardly anyone took our money. Now it leaves us wondering why. Let’s set up the circumstances. Janne and I began tabling outside the SUB at 10:30 and stayed there until 12:00. All that was on our table was a jar of coins and 1 dollar bills, as well as sizeable sign that read “Free Money, No Joke No questions” with an arrow pointing to Continue reading We Performed a Free Money Experiment, Results: Very Few Takers→

The Why Axis Chapter 4: How Can Sad Silver Medalists and Happy Bronze Medalists Help Us Close the Achievement Gap

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Gneezy and List take the book in a completely different direction in Chapter 4 when they use evidence from field experiments to suggest methods to reduce the infamous Achievement Gap in public schools. The authors begin by laying out the facts of the achievement gap, particularly between high income families and those living in inner cities. The U.S. spends the 5th most amount of money per capita on students – $11,467 – yet there is a 9% drop out rate for “low-income” students and drop-out rates of above 50% for inner city kids, compared to a low 2% rate for Continue reading The Why Axis Chapter 4: How Can Sad Silver Medalists and Happy Bronze Medalists Help Us Close the Achievement Gap→

Going All Out on Fuel Efficiency

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Have you ever been on the freeway, going 10 miles over the speed limit and laughing at all those suckers biting your dust? Well, I got news for you. They’re laughing right back, because your tank is emptying much faster than theirs. Let’s be honest, 10 above the speed limit is the real speed limit, so you don’t have to perform a benefit-cost analysis of whether speeding down I-5 at 70 is worth the risk of a ticket. Instead, you should be wondering whether the time saved going 70 instead of 60 (or dare I say 55) is worth the Continue reading Going All Out on Fuel Efficiency→

Self-Signaling: Why Wearing Fakes Makes us Cheat More

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In economics we define signaling, in simple terms, as a message sent to a receiver containing information about the party sending it, which is assumed to be credible. A well-known example is sending signals with education. When you walk into a doctors office and see his framed diplomas from prestigious medical schools you trust him more. These diplomas are a signal from the doctor to the patient about their credibility and ability to perform. But this definition involves two parties, one sending and one receiving the information. A concept that is largely overlooked in the field of economics is “self-signaling”. Continue reading Self-Signaling: Why Wearing Fakes Makes us Cheat More→

The Science of Decision-Making: Behavioral Economics

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Most economic models and theories rely on the assumption that people (consumers, producers, etc.) are rational. The idea of homo economicus, or the “economic human”, represents the perfectly rational and perfectly imaginary individual represented in most of economics. The assumption of rationality keeps models straightforward and results consistent. Rational people buy low and sell high, they always purchase a perfectly balanced bundle of goods that satisfies them completely, and they definitely consider consumer/producer surplus when buying Christmas presents and/or the opportunity costs when buying a house or a car. The economic human is psychologically rational and fundamentally self-interested. However, we Continue reading The Science of Decision-Making: Behavioral Economics→

The Cobra Effect

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Have you ever tried to help someone but by intervening you just made everyone worse off? Though your intentions were good, your actions had unforeseen and unintended consequences? Are you ever left wondering how your plan could have gone so poorly? If you answered yes to the above questions, then join the club of those who have fallen victim to the cobra effect. The cobra effect refers to instances when the solution to the problem actually makes the problem worse. This is not to say the solutions were shortsighted or based on poor logic. It is merely that people react Continue reading The Cobra Effect→