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Behavioural Economics and Experiments

How we decideIntroductionDescartes’s error?How do economists and psychologists approach decision making?Infusing psychology into economics: the guessing gameTypes of decision makingAna’s problem of choiceAna cannot buy everything she wants; her choices are constrainedAna knows what she can afford, but how does she choose among these?Ana knows what she can afford and how she should choose. What should she buy?Two examples of how to use this toolHow realistic is this “normative” model? Let’s look inside the brainConcluding remarksNotesExperiments in behavioural economicsIntroductionThe rise of experimental economicsElements of experimental designA brief history of experimental economicsExperiments in economics and psychology: similarities and differencesCriticisms of experimental economicsIn lieu of a conclusion: experimental economics: the path forwardNotesGut feelings and effortful thinkingIntroductionThe power of gut feelings, or System 1 thinkingLimits to System 1 thinking and the need to engage System 2Why do we need to worry about Systems 1 and 2?Choice over time: smaller–sooner versus larger–later rewardsConcluding remarksNotesExpected utility theory and prospect theoryIntroductionRisk neutrality and risk aversionThe Allais ParadoxProspect theoryExplaining the paradoxical behaviour in Allais and elsewhereLoss aversion, mental accounting and the endowment effectLoss aversion and overconfidenceConcluding remarksNotesProbabilistic thinkingIntroductionProbabilities are dicey and often hard to get our heads aroundOne further detour on the way to the jury decision-making problemBack to the jury decision-making problemMichael Bloomberg’s stop-and-frisk policyIndira, the mature motherDependent or independent? Connected or unconnected? Conjunctive and disjunctive fallaciesRegression to the meanConcluding remarksNotesThinking strategicallyIntroductionThe prisoner’s dilemmaYossarian and Nately’s choices revisitedPrisoner’s dilemma in the animal worldTit-for-tat strategies in prisoner’s dilemma gamesLet us talk of Yossarian and Nately one last timeMen are from Mars, women are from Venus: battle of the sexesBattle of the sexes: the game played by Della and JimHunt a stag or a rabbit? The stag hunt game and pay-off-ranked equilibriaPlease, why don’t you go first? Games where players move in sequenceConcluding remarksNotesThe ultimatum gameThe ultimatum gameIntentions, as well as outcomes, matterCriticisms of the findings of Güth and his colleaguesBehaviour in the ultimatum game: fairness or altruism?Raising the monetary stakes in the ultimatum gameFear of punishment or fear of embarrassment?Do norms of fairness differ across cultures?An even more ambitious cross-cultural studyConcluding remarksNotesMarket implications of the ultimatum gameIntroductionFairness as a constraint on profit-makingEconomic consequences of norms of fairnessFairness and inequalityConcluding remarksNoteTrust and trustworthiness in everyday lifeTrusting strangersIs trust nothing but altruism? How about reciprocity?The role of expectations in the decision to trustIs a trusting decision analogous to a risky one?Do trust and trustworthiness go together?Does trust pay?Concluding remarksNotesTrust and trustworthiness in marketsIntroductionTrust and trustworthiness in agency relationshipsFurther economic implications of fairness and trustThe Grameen Bank experienceExtrinsic incentives can crowd out intrinsic motivationsIntrinsic motivations, sustainability and climate changeExtrinsic incentives and crowding out of intrinsic motivationsTrust and growthConcluding remarksNotesCooperation in social dilemmasAn example of a social dilemmaAre smaller groups better at addressing collective action problems?Are contributions caused by confusion on the part of the participants?Looking for alternative explanationsDo participants display a herd mentality?Turning the prisoner’s dilemma into a stag hunt gameConcluding remarksNotesThe carrot or the stick: Sustaining cooperation in social dilemmasIntroductionSustaining social norms by punishing free-ridersOn the cost effectiveness of costly punishmentsThe possibility of “perverse” punishmentsAre punishments more effective in the long run?The “verdict” on costly punishmentsSustaining cooperation via means other than punishmentsSustaining cooperation in non-sorted groupsCooperation in sorted groupsAn intergenerational approach to cooperationConcluding remarksNotesI will if you will: Resolving coordination failures in organizationsCoordination failures in real lifeExperimental evidence on coordination failuresThe minimum effort coordination gameTalk is cheap; or is it? Using communication to resolve coordination failuresMoney talks: the role of incentivesWhen in Rome … creating culture in the laboratoryFrom the laboratory to the real world: do these interventions work? The story of Continental AirlinesFrom the real world, back to the laboratory: are you partners or strangers?Concluding remarksNotesBehavioural analyses of marketsIntroductionDemandSupplyThe theory of competitive equilibriumConsumer and producer surplusBut … does it work in real life?Robustness of the market equilibration processPosted offer marketsPosted offer markets and market powerFairness in posted offer markets revisitedPolicy interventions in marketsConcluding remarksNotesAsset bubbles in marketsIntroductionStudying asset bubbles in the labI don’t understand why the fundamental value is declining!Rational speculation and the role of expectationsUnleashing (and leashing) our animal spiritsPassions within reason: the role of experience in curbing bubblesConcluding remarksNotes

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