A Practicum in Behavioral Economics Contents

CONTENTS A Practicum in Behavioral Economics Arthur This Book Approach Homo Homo sapiens The Textbooks Different Sections The Textbooks Different Levels of Rigor Thinking The Textbooks Appendices The Book Genesis and Tips on How to Use It A ( Very ) Brief History of the Origin of Behavioral Economics Introduction

PART I . SECTION THE IRRATIONAL QUIRKS OF HOMO SAPIENS Miscalculations , Cognitive Illusions , and Effects ( Relatively Simple ) Miscalculations ( Relatively Complex ) Miscalculation Cognitive illusions Affect Heuristic Availability Heuristic Effects Depletion Effect Priming Effect Priming Effect ( Version ) Priming Effects Abound Mere Exposure Effect intentional Causation Jumping to Conclusions Framing Effect Halo Effect Ordering Effect Anchoring Effect Silo Effect Study Questions 17 17 18 19 22 22 23 24 24 25 26 28 29 29 30 30 31 34 37 42 43

. The Biases and Fallacies of Homo sapiens Status Quo Bias Bias Law of Small Numbers Representative Bias Conjunction Fallacy Conjunction Fallacy ( Version ) Planning Fallacy Stereotyping Conformity Hindsight Bias Less is More Bias Bias The Bias Blind Spot Study Questions 48 49 49 51 54 55 56 57 58 63 65 66 67 69 71 74

PART IL SECTION HOMO VERSUS HOMO SAPIENS The Rationality of Homo Principal Rationality Axioms Completeness Axiom Transitivity Axiom Additional Dominance Axiom Invariance Axiom Principle Independence Axiom Substitution Axiom Homo and the Expected Utility Form Home and the Indifference Curve Homo and Choice Key Takeaways on Homo Study Questions The Reality of Homo sapiens Prospect Theory Regret Theory Homo sapiens and Choice Key Takeaways on Homo sapiens Study Questions 81 81 81 81 83 83 83 84 84 85 86 93 98 105 106 111 111 123 126 133 138

. Laboratory Experiments The Rationality of Homo Versus the Reality of Homo sapiens Testing the Invariance Axiom ( Version ) Testing the Invariance Axiom ( Version ) Testing the Invariance Axiom ( Version ) Testing the Invariance Axiom ( Version ) Testing the Invariance and Dominance Axioms ( Version ) Testing the Invariance and Dominance Axioms ( Version ) Testing the Substitution Axiom Testing the Principle Study Questions 145 145 147 149 152 155 158 160 162 165

. Laboratory Experiments Additional 167 Differences Between Homo and Homo sapiens Mental Accounting ( Version ) 167 Mental Accounting ( Version ) 169 Mental Accounting ( Version ) 172 Mental Accounting ( Version ) 177 Discounting 179 Improbable Events 18 Ambiguity and Competency Effects 184 The Decoy Effect 187 The Effect 190 Vividness of Probability 193 Envy and Guilt ( or , or 195 Fairness ) Fairness in the Context of Framing 200 Regret and Blame 206 Asymmetric Regret 208 The Gender Cap 210 Testing for the Existence of an Endowment 217 Effect Homo and the Endowment Effect 220 Concluding Remarks 224 Study Questions 226

PART III . SECTION BEHAVIORAL GAME THEORY Some Classic Games of Dominance Ultimatum Bargaining Nash Demand Game Finite Game Continental Divide Game Beauty Contest Traveler Dilemma Escalation Game Escalation Game with Incomplete Information Burning Bridges Game Police Search Dominance Game Dirty Faces Trust Game ( Centipede ) Trust Game Study Questions 237 238 244 248 249 252 253 254 256 260 264 266 268 271 276 280

. Some Classic Games Prisoner Dilemma Finitely Repeated Prisoner Dilemma Public Good Game Stag Hunt Game Stag Hunt ( Reprise ) Battle of the Sexes Penalty Kick Game is More Information Always Better ?

Market Entry Weakest Link Weakest Link with Local interaction ( Two Versions ) Concluding Remarks Study Questions 290 290 293 294 301 304 310 314 317 319 320 324 328 331 336 339 PART . SECTION EMPIRICAL STUDIES AND FIELD EXPERIMENTS . The Studies and Experiments 355 Discrimination in the Weakest Link Game Show 355 Discrimination in Lending 359 What in a Name ?

360 Can Looks Deceive ?

363 The Spillover of Racialization 365 Awareness Reduces Racial Discrimination 368 Improving Student Performance 370 Improving Teacher Performance 373 Healthcare Report Cards 374 Losing Can Lead to Winning 376 Loss Aversion in Professional Golf 378 Are Cigarette Smokers Hyperbolic Time 381 ?

Arrest Rates and Crime Reduction 385 Interpersonal Dynamics in a Simulated Prison 386 Corruption in Sumo Wrestling 391 Corruption in Services 394 New York City Taxi Cab Drivers 398 Savings Plans for the 400 The Finnish Basic income Experiment 403 405 Trust as Social Capital 409 Effects 413 Retirement Savings Plans 418 Public Retirement Savings Plans 42 The Deadweight Loss of 422

The Behavioral and Psychological Effects of Money Price and The Placebo Effect The Effects of Conceptual information on the Consumption Experience Can Default Options Save Lives ?

Reward Versus Punishment Contingency Management of Substance Abuse ! ing Pain Management Willingness to Accept Pain ( Reducing Urban Homelessness Reducing Food Waste Reducing Environmental Theft Reducing Litter Garbage In , Garbage Outed Promoting Energy Conservation Promoting Environmental Conservation in Hotel Rooms Face Masks and the Pandemic Text Messaging to improve Public Health invoking Fear as an Agent of Change income Tax Compliance The Samaritan Toxic Release inventory Reducing Drunk Driving increasing Voter Turnout Cultural and Merger Failure Messy Work Space 426 431 433 436 440 443 446 448 451 452 455 457 460 464 468 472 476 480 483 486 490 493 499 500 504

Messy Crossing Disorganized Pedestrians Beneficial Biases in Strategic Beneficial Too If You Give a Grocery Shopper a Muffin Catalog Sales and Projection Bias Student Procrastination Stopping Procrastination Dead With Deadlines Testing the Hypothesis Excessive Planning Keep Your Options Open ?

Anticipated Versus Unanticipated Optimistic in the Stock Market The Equity Premium Puzzle Endowment Effects Among Experienced Versus inexperienced Traders Reluctance to Sell in the Stock Market Reluctance to Sell in the Housing Market Deal or No Deal ?

Health Club Membership Lessons From an Experiment The Persistence of Political Temptation and The Case of Potato Chips Dishonesty Temptation Bigger Universities , Smaller Silos Tipping Points Magical Thinking 510 513 518 524 528 530 533 534 536 541 544 548 550 552 554 558 561 565 568 571 574 580 582 588 591 595

Concluding Remarks Study Questions References Appendix A Example Response Cards Appendix Student Survey Appendix Example Presentation Slides Appendix Example Course Outlines Appendix Linkages Matrix 600 602 619 656 668 672 684 688