Summary: Economic Psychology

Read the summary and the most important questions on Economic psychology

• 1 History of economic psychology

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• How are counterproductive interventions: (e.g. Poisonous snakes were killing people so reward killing snakes, but people now bred cobra's to get money) called?

  Cobra effect

• Utilitarian thinkers think about how they can organise society in a way to get the most pleasure for most people (progressive). How is pleasure measured (by hedonic calculus)?

  Hedons (units of pleasure)
  Dolors (units of pains)

• What is ment by: when people behave differently than theory (you need separate theories for these deviations)?

  Anomaly

• What principle describes ''the second place is the first place loser'' (a bronze medallist is happier than a silver medallist, because of the contrast in comparisons. Silver looks at gold and bronze looks at that he made it to the best 3 on the podium)?

  When less is more

• 2 Expected value & utility theory

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• What is meant by: when you on average win zero (expected value = 0)

  Null-bet

• What is paradox is described by the following: challenge for expected value that expected value is indefinite, probabilities become low but outcomes become very large?

  St. Petersburg Paradox

• Bernoulli added to the expected value theory that; the utility/subjective value resulting from any small increase in wealth will be inversely proportional to the quantity of goods already possessed (a goin of thousand dollars is with more to a pauper than to a rich man, though both gain the same amount). What did he turn the expected value theory into?

  Utility theory

• 3 Theory of decision making - Edwards (1954)

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• In the theory of riskless choices, the decision maker is considered to be an economic man. Of which 3 assumptions does the economic man exist?

  - Completely informed (assumed to know not only what all the courses of action opten to him are, but also what the outcmome of any action will be)
  - Infinitely sensitive (the available alternatives are continuous)
  - Rational (can weakly order states and can choose to maximize something)

• Psychologists find the economic man very unlike real men, so they tend to reject the theories that result from the assumptions. But the most useful thing to do with the theory, is not to criticize its assumptions but (economic psychologists say) rather ... (fill in the blank).

  To test its theorems

• What best describes ''the expected value of a bet is found by multiplying the value of each possible outcome by its probability of occurrence and summing these products across all possible outcomes?

  Expected utility maximizing