12. heuristics and biases

standard model assumptions

• perfect ratioanlity can process information instantly and costlessly

• not always the case due to bounded rationality

• heursitics and mental short cuts

ariely et al 2003

• 55 students shown 6 products

• asked if they would buy each good for a $ figure equal to the last 2 digits of their social security number

• after max wtp was stated

hypothesis

• h0= wtp is identical across subjects it is indepndant of social security numbers

• h1= higher wtp for subjects with higher social security number

this is the anochiring heuristc

if people are rational there should be no differecne between those with high vs low social security numbers

anchoring heuristics

thdancy to grab hold of irrelevant and subliminal inputs in the face of uncertianty

california lottery

the odds of winnning are over 18 million to 1 if played 2 times we expect to win 175000 years from now people over estimate the odds of winning by over 1000%