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Tag: behavioral-economics

Tag: behavioral-economics

16 pages tagged behavioral-economics.

Pages

  • Chapter 6: Modern Economic Theories — Economics 101

    Classical economics assumes rational actors in efficient markets. Three modern theories — Minsky’s Financial Instability Hypothesis, New Growth Theory, and Kahneman & Tversky’s Prospect Theory — explain what classical models miss: why stable markets breed crashes, why human capital is the real engine of growth, and why people systematically reject equivalent gains framed as losses.

  • Chapter 7: Information and Behavioral Economics — Economics 101

    Classical economics assumes perfect information and perfectly rational actors. The two new schools that replaced those assumptions — information economics (Stiglitz, Akerlof) and behavioral economics (Simon, Becker, Thaler) — explain how real markets cope with information gaps and human cognition, from used-car lemons to checkout-aisle candy.

  • Chapter 4: The Associative Machine — Thinking, Fast and Slow

    System 1 is an associative engine — exposure to one idea automatically and involuntarily activates a web of related ideas, priming behavior and judgment in ways we never consciously intend or notice.

  • Chapter 25: Bernoulli’s Errors — Thinking, Fast and Slow

    Expected utility theory has dominated economic models of decision-making for 300 years — but it makes a critical error. It judges outcomes by their final states rather than by gains and losses from a reference point. This error is not a detail; it is the foundation of prospect theory.

  • Chapter 26: Prospect Theory — Thinking, Fast and Slow

    Prospect theory replaces expected utility theory with a model of how people actually evaluate outcomes: relative to a reference point, with loss aversion (losses hurt more than equivalent gains help), and diminishing sensitivity in both directions.

  • Chapter 27: The Endowment Effect — Thinking, Fast and Slow

    Owning something changes how you value it — not because the object has changed, but because parting with a possession is coded as a loss, and losses loom larger than equivalent gains. The endowment effect is one of the most replicated demonstrations of loss aversion.

  • Chapter 28: Bad Events — Thinking, Fast and Slow

    Loss aversion is a pervasive feature of human psychology — bad events dominate good ones in nearly every domain of life, from relationships to evolution. The asymmetry between the impact of gains and losses shapes behavior far beyond financial decisions.

  • Chapter 29: The Fourfold Pattern — Thinking, Fast and Slow

    Prospect theory predicts four distinct risk attitudes depending on whether outcomes are gains or losses and whether probabilities are high or low. This fourfold pattern explains apparently contradictory behavior — insurance-buying and lottery-playing by the same person.

  • Chapter 30: Rare Events — Thinking, Fast and Slow

    People overestimate the probability of unlikely events and overweight them in decisions — driven by availability, vividness, and the probability weighting function. This overweighting explains both the purchase of lottery tickets and the fear of terrorism.

  • Chapter 31: Risk Policies — Thinking, Fast and Slow

    Individual risky choices should be evaluated as part of a policy, not in isolation. Narrow framing — evaluating each gamble independently — produces loss-averse choices that are individually defensible but collectively suboptimal. Broad framing corrects this.

  • Chapter 32: Keeping Score — Thinking, Fast and Slow

    Mental accounting — treating money in different accounts as if it were not fungible — produces irrational decision-making. Sunk costs, house money effects, and regret aversion all follow from the way System 1 tracks gains and losses in mental accounts rather than total wealth.

  • Chapter 33: Reversals — Thinking, Fast and Slow

    When the same options are evaluated jointly vs. separately, preferences reverse — because different attributes become salient in each mode. Joint evaluation activates analytical comparison; single evaluation activates emotional response. Neither mode consistently produces the best decisions.

  • Chapter 34: Frames and Reality — Thinking, Fast and Slow

    Equivalent facts described differently produce different decisions — not because people are confused, but because frames determine which aspects of reality are attended to. Frames are not neutral; they are the reality System 1 operates on.

  • Conclusions — Thinking, Fast and Slow

    Kahneman surveys what the heuristics-and-biases program has established, what remains uncertain, and what it means for improving the quality of judgment in organizations, policy, and personal life. The goal is not to eliminate System 1 but to know when not to trust it.

  • Appendix B: Choices, Values, and Frames — Thinking, Fast and Slow

    A condensed version of Kahneman and Tversky’s 1984 American Psychologist paper — the canonical statement of framing effects and prospect theory applied to decision analysis, showing how equivalent descriptions produce systematically different choices.

  • Thinking, Fast and Slow — Book Summary — Thinking, Fast and Slow

    Chapter-by-chapter synthesis of Thinking, Fast and Slow by Daniel Kahneman — the definitive account of the two systems that drive human judgment, and what their rivalry reveals about how we make decisions.

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