Bounded Rationality by Sanjit Dhami

Author:Sanjit Dhami
Language: eng
Format: epub
Tags: Bounded rationality; heuristics; heuristics and biases program; fast and frugal heuristics; public policy; great rationality debate; social norms; social rationality; evolutionary dynamics; stochastic social dynamics; complexity; agent-based models; attribute-based models; prospect theory; mental accounting; libertarian paternalism; nudges; default options; deadweight loss from taxes; limited attention; representativeness; anchoring; availability; emotions; optimization; experimental evidence; narratives; choice bracketing; winner’s curse; evidential reasoning; overconfidence; hyperbolic discounting; present-bias; self-control problems; less-is-more effect.
Publisher: MIT Press

Example 4.16 (Thaler, 1980) Suppose that you purchased a ticket for $100 to see a basketball game, but there is a blizzard on the day of the game. Will you go to the game? The cost of the ticket is a sunk cost and should not influence the decision to undertake potentially risky travel in a blizzard. Thus, the optimal action predicted by the BRA (to go or not) for ticket holders is identical to those who have not purchased the ticket. However, it is very likely that ticket holders would be more willing to travel in the blizzard. The explanation is similar to that for example 4.15. Individuals appear to have a mental account for the basketball game, which is debited for $100 when the ticket is purchased. If the game is missed, then this account must be closed in the red, which is aversive. However, non–ticket holders do not face this calculation, and they decide on the basis of how safe it is to travel in a blizzard to see the game.

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