Here are some thoughts on presumption of self-control theories. They are based on the presumption that we have bounded willpower and that there needs to be a course of action to which keeps in the individual on track to meeting goals and expectations. Thus they derive incentive and constraints as solutions. Constrains, or rules, are meant to restrict the individual's opportunities.

Do you have any thoughts on self-control theories and relation to behavioral or other forms of economics/choice making?

Social dilemmas are simple situations between a pair of people, to a group of people, that involve making decisions that will ultimately affect their well being and the well-being of the overall group. The 'players' in the social dilemma have the choice to cooperate to which is known as taking the best interest for the group or taking the action for self interest known as defecation. In the situations, it is always better if the people decide to coordinate and cooperate amongst each other for gain of the overall group.


Read the rest of this entry »

Hyperbolic discounting refers to the preference people have to accept smaller payoffs sooner rather than larger payoffs in the future. This means that in terms of an individual saving for retirement, the individual is much more inclined typically to spend the money now rather than have a larger amount later to spend, say on retirement. This might create a problem later for the public in that people may spend excess amount in the current time rather than save enough for later.


Read the rest of this entry »

Back to some behavioral economics. Thaler cites three stylized facts about horsetrack betting, they are as follows:

1. Most betters bring an amount of money that represents a small amount of their overall wealth. In terms of mental accounting, this money may represent the theory that money is non-fungible. Because they are not brining their whole wealth may be indicative of the portion of money associated with a specific label. For example, perhaps the money is thought of to carry utility in the form of entertainment. So instead of using this money to pay off debt, this money is strictly dedicated to entertainment, in this case betting.


Read the rest of this entry »

In mental accounting there are three main components to this theory. The three of them are as follows and may affect the individuals preferences as follows:

Value Function

This is a function that represents gains and looses with respect to some reference point. In rational behavior theory, it would predict that an individual gains some sort of utility in a gain situation and inversely a same amount of disutility for the same size loss. In mental accounting however, this does not hold true in that individuals typically show contrasting behavior. Value function states that in gains individuals typically view their gains in a concave function to which it displays diminishing marginal returns and in losses it is convex showing increasing marginal returns.


Read the rest of this entry »

Here is a brief explanation on the law of small numbers. The Law of Small Numbers infers that when people see two small numbers that they have the natural propensity to round the numbers down to equal the same. This is a error in that small numbers may make a difference. In such a case as the story with the patient, it would be incorrect to round 4% down to 0% because they are relatively close. 4% may be significant in a diagnosis. Law of Small Numbers may make people act in irrational ways.

Examples may include: first people buying lottery tickets. Although a probability exists though minute, the probability by most people are thought to be zero because of the general rounding. When a large group of people neglect to show up except for a few, it is not uncommon to hear the leader say 'nobody is here' inferring rounding close to zero relative to the sum. People look at speeding tickets and think about how many cars on the road in total. As a consequence because there are so many cars the driver may think they are immune to tickets effectively mentally reducing the probability to zero when in fact a probability exists.

Technorati Tags: law of small numbers, small numbers