February 2016
Beginner to intermediate
500 pages
33h 40m
English
Content preview from Managerial Economics and Strategy, 2/eBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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14.5 Behavioral Economics and Uncertainty
In the expected utility model, as in the standard utility model, we assume that people make rational choices (Chapter 4). However, many individuals make choices that are inconsistent with the predictions of the expected utility model. Economists and psychologists explain some of these departures from the predictions of the expected utility model using behavioral economics: the use of insights from psychology and research on human cognition and emotional biases to augment the rational economic model in an attempt to better predict economic decision making. (We discussed other applications of behavioral economics in Chapters 4, 9, and 13.)
Biased Assessment of Probabilities
People often have mistaken beliefs ...
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