ECON 2023 Lecture Notes - Lecture 18: Daniel Kahneman, Marginal Utility, Prospect Theory
7 Dec 2016
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Prospect theory: neoclassical economics: consumer-choice situation only in good situations, behavioral economics: how people cope w. negative possibilities. 3 facts how people deal w. goods & bads: 1) judge good & bad things in relative term. Loss > gain (impact: prospect theory. Pay attention to : how consumers plan for & deal w. life"s ups & downs, why they often appear narrow-minded & fail to see big picture . Awarded nobel prize in economics w. powerful prospect theory. Used to given price > any increase= loss (to status quo price) . Many business change product size (instead of price) Consumer mentally xate on price (<= not fully rational) (because price= characteristic in making purchasing decisions) Evaluate situations in terms of gains & losses. (what is others get 15% up?: prospect theory: Preferences= change drastically depending on whether contextual info de nes situation gain/ loss. =can be manipulated by advertisers, lawyers, politicians etc. Framing effect= major consequences for consumer behavior.
