Topic: Behavioural Economics essay assignment

Question:

Describe the main tenets of the standard model of strategic interaction. Discuss three examples that, according to behavioural economics, are at odds with the standard game theory. One of the examples has to analyze the role of incentives. (2000 Words)

Refer to lecture notes for weeks 1 to 3 

Paper layout: begin by answering the question ‘describe the main tenets of the standard model of strategic interaction – this section should be approximately 500 words Refer to week 1 and readings.

Then go on to discuss 3 different games that, according to behavioural economics, are at odds with  the standard game theory.  Examples that are discussed must either be from the slides of week 1, 2 &3 or be examples from the essential readings. Could possibly discuss prisoner’s dilemma and ultimate games.  When discussing the example games using tree diagrams of payoff matrix to provide a comprehensive understanding. One example must critically analyze the role of incentives.

Ensure that the transitioning between the description of strategic interaction and then going into the game theory examples flows.  The paper should be well rounded so that it flows well. Must refer to attached files and required readings.

Week 1 – Strategic Interactions 

Decision-making is more complicated when it involves more than one party, and not just a simple yes/no decision on one person’s part.

Essential readings

1. Philip Corr and Anne Plagnol – Behavioral Economics

Chapter 5 “Manners, monkeys and moods”

2. Antonio R. Damasio – Descartes’ error: emotion, reason and the human brain

Chapter 8 “The Somatic-Marker Hypothesis”

Further readings 

1. Emir Kamenica (2012). “Behavioral Economics and the Psychology of Incentives.” 

2. David Just and Joseph Price (2013). “Using Incentives to Encourage Healthy Eating in Children.”

3. Uri Gneezy, Stephan Meier and Pedro Rey-Biel (2011). “When and Why Incentives (Don’t) Work to Modify Behavior.” 

4. Martin J. Osborne – An introduction to game theory.

Chapter 2 “Nash Equilibrium: Theory”.  Please se link below:

https://www.economics.utoronto.ca/osborne/igt/

Must address focal points when explaining strategic interaction 

Focal points 

  1. 1)  The primary salience hypothesis is that people choose the option that is most salient to them and because the same option is salient to many people, people coordinate by accident 
  2. 2)  The secondary salience hypothesis is that people expect others to use primary salience and so choose the option they think will have primary salience for others 
  3. 3)  The Schelling salience hypothesis is that people ignore what is primary or secondary salient and look for some key or clue to how coordinate 

Refer to reading:  Antonio R. Damasio – Descartes’ error: emotion, reason and the human brain Chapter 8 “The Somatic-Marker Hypothesis”

List of reference that must be referenced

Week 2 – Bubbles, Envy and Other People

The existence of boom-and-bust bubbles seems inconsistent with the efficient market hypothesis.  Often, people’s decisions can often be understood only in relation to how other people will react to them.

Essential readings

1.  Barry Schwartz – The paradox of choice: why more is less

Chapter 9  “Everything Suffers from Comparison”

Week 3 – Utility, Choice, Efficiency and Happiness

According to the standard theory, people’s choices reveal their preferences.  Then we can think of utility as a measure of happiness. Can we be sure, however, that a person’s choices truly reveal what makes them happy?

Essential readings

1. Philip Corr and Anne Plagnol – Behavioral Economics

Chapter 3 “ECON: homo economicus”

2. John Kay and Mervyn King –Radical Uncertainty

Chapter 8 “Rationality in a large world”

3.  Barry Schwartz – The paradox of choice: why more is less

Chapter 8 “Why Decisions Disappoint: The Problem of Adaptation”

4. Ivan Moscati – Measuring utility: from the marginal revolution to behavioral economics

section 3.2 Edgeworth’s reluctant Hedonimetry (pp. 53-58)

section 3.4 Marshall and willingness to pay as a measure of utility (pp. 58-64)

5.  Daniel Kahneman and Richard H. Thaler (2006).  “Anomalies Utility Maximization and Experienced Utility”. Please see link below:

https://www.aeaweb.org/articles?id=10.1257/089533006776526076

Further readings 

1. Dylan Smith, George Loewenstein, Christopher Jepson, Aleksandra Jankovich, Harold Feldman and Peter Ubel (2008). “Mispredicting and Misremembering: Patients With Renal Failure  Overestimate Improvements in Quality of Life After a Kidney Transplant”. Please see link below:

http://docplayer.net/19386266-Mispredicting-and-misremembering-patients-with-renal-failure-overestimate-improvements-in-quality-of-life-after-a-kidney-transplant.html

2.   Barry Schwartz – The paradox of choice: why more is less

Chapter 6 “Missed Opportunities”

Chapter 7 “The Problem of Regret”.

Type of assignment: Academic paper writing
Type of assignment: Essay
Subject: Economics
Pages/words: 7/1925
Number of sources: 5
Academic level: Bachelor
Paper format: Harvard
Line spacing: Double
Language style: UK English

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