Summary Behavioral decision making
University of Groningen
2022 November
,Table of Contents
Lecture 1............................................................................................................................3
Lecture 2............................................................................................................................4
lecture 3.............................................................................................................................6
Lecture 4..........................................................................................................................12
Implications of mental accounting..............................................................................................13
Pain of Paying................................................................................................................................................13
Sunk Cost Fallacy...........................................................................................................................................14
Key takeaways............................................................................................................................14
Lecture 5..........................................................................................................................15
Motive: protecting the self-concept...........................................................................................15
Dishonesty often pays off …........................................................................................................16
Scientist agree… but the public remains skeptical… why?..........................................................17
Lecture 6..........................................................................................................................18
Lecture 7..........................................................................................................................22
Implications for behavior change….............................................................................................22
How can we affect our inner elephant?......................................................................................22
What is a nudge?..........................................................................................................................................22
Nudge 1: Capitalize on social proof.............................................................................................23
Pluralistic ignorance......................................................................................................................................23
Nudge 2: Change the default option...........................................................................................24
Nudge 3: Appeal to a positive self-image....................................................................................24
, Lecture 1
Standard models of economics
1. People are rational and aim to maximize their ultility
2. People are driven by monetary incentive
a. People gain a financial advantage when the put in some effort
3. Optimal decisions are made at the margin
a. Benefits must be higher than the costs
People do not behave like in the economic models
So the economic man is created (idea behaviour)
Prospect theory
Objective = physical
Subjective = feeling
1. People are loss aversive (losses loom larger than gains)
a. Your are more disappointed when you lose €500 than happy when you
gain €500
2. Our risk propensity if determined by how options are framed
3. People evaluate the consequences in terms of deviation from a reference
point (individuals status quo)
a. Compared to others around people (reference point) x=0 y=0 in graph
4. People experience diminished sensitivity to losses and gains
People become
- Risk averse when they can gain something (gain frame)
- Risk seeking when they can lose less (loss frame)
Reference points change constantly
See online presentation for:
Framing effect
Mental accounting & sunk cost
Endowment effect
Loss aversion
Status quo bias
Correlation does not mean there is a casual relation
There are two types of markets
- Social
- Monetary
Effort for payment paper will be a subject of the exam
University of Groningen
2022 November
,Table of Contents
Lecture 1............................................................................................................................3
Lecture 2............................................................................................................................4
lecture 3.............................................................................................................................6
Lecture 4..........................................................................................................................12
Implications of mental accounting..............................................................................................13
Pain of Paying................................................................................................................................................13
Sunk Cost Fallacy...........................................................................................................................................14
Key takeaways............................................................................................................................14
Lecture 5..........................................................................................................................15
Motive: protecting the self-concept...........................................................................................15
Dishonesty often pays off …........................................................................................................16
Scientist agree… but the public remains skeptical… why?..........................................................17
Lecture 6..........................................................................................................................18
Lecture 7..........................................................................................................................22
Implications for behavior change….............................................................................................22
How can we affect our inner elephant?......................................................................................22
What is a nudge?..........................................................................................................................................22
Nudge 1: Capitalize on social proof.............................................................................................23
Pluralistic ignorance......................................................................................................................................23
Nudge 2: Change the default option...........................................................................................24
Nudge 3: Appeal to a positive self-image....................................................................................24
, Lecture 1
Standard models of economics
1. People are rational and aim to maximize their ultility
2. People are driven by monetary incentive
a. People gain a financial advantage when the put in some effort
3. Optimal decisions are made at the margin
a. Benefits must be higher than the costs
People do not behave like in the economic models
So the economic man is created (idea behaviour)
Prospect theory
Objective = physical
Subjective = feeling
1. People are loss aversive (losses loom larger than gains)
a. Your are more disappointed when you lose €500 than happy when you
gain €500
2. Our risk propensity if determined by how options are framed
3. People evaluate the consequences in terms of deviation from a reference
point (individuals status quo)
a. Compared to others around people (reference point) x=0 y=0 in graph
4. People experience diminished sensitivity to losses and gains
People become
- Risk averse when they can gain something (gain frame)
- Risk seeking when they can lose less (loss frame)
Reference points change constantly
See online presentation for:
Framing effect
Mental accounting & sunk cost
Endowment effect
Loss aversion
Status quo bias
Correlation does not mean there is a casual relation
There are two types of markets
- Social
- Monetary
Effort for payment paper will be a subject of the exam
