Behavioural Economics: A closer Look At Decision Making - chapter 8

The idea that people can hold 2 inconsistent sets of preferences
- what we would like to want in the future
- what we will want in the future, when it comes
time inconsistency: when people change their minds about what they want simply because of the timing of the decision
- people are time inconsistent when they say they will prefer good 1 next week, but then switch to good 2 when they can consume it immediately
- Explains behaviours like procrastination and lack of self-control
- A time-inconsistent person is neither irrational or rational
- Future-oriented and present-oriented selves within the individual are rationally pursuing their own objectives
commitment device: strategy or tool that allows people to place restrictions on later choices now so they can make better decisions in the future

sunk costs: costs that have already been incurred and cannot be recovered or refunded
There’s no sense in considering sunk costs when weighing the trade-off between opportunity cost and benefits
The rational conclusion is to accept the sunk cost, however, people often lose the opportunity cost through lost time

If the benefit you get from a good is concrete and immediate, you will overvalue it, compared to an abstract and distant good, which is undervalued
People are prone to undervaluing opportunity costs that are non-monetary, such as time
The implicit cost of ownership is the cognitive bias documented by behavioural economists that leads people to value things more once they possess them
- another non-monetary opportunity cost that is often overlooked

Fungible: easily exchangeable or substitutable
Commodities are fungible (ex. money)
Separating money into mental categories may help organize a person’s expenditures and stay on budget instead of spending it
- Reduces financial risks
- People who have recently gained some money are more likely to spend it recklessly