prospect theory

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“I hate losing more than I even wanna win.” – Oakland Athletics General Manager Billy Beane (or some creative Hollywood writer channeling Billy Beane)

Around 40 seconds in.

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Straight Talk, the pre-paid cell phone company, plays up the good feeling you’re going to get from a saving a few bucks on a cell phone plan (even if it’s not going to affect your total wealth much). It ain’t going to be this good, though.

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When Billionaire owner of the Dallas Mavericks Mark Cuban fills up a tank of gas these days it “turns his stomach.” The Associated Press says Cuban’s painful reaction to gas price spikes is attributable to habits from “his working class upbringing.” Here’s another idea: Prospect Theory. A staple of Prospect Theory is that people evaluate outcomes and experience utilities from decisions based on gains and losses instead of absolute wealth. So $.50/gallon spikes in the price of gas can really irritate very rich people.

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1) Richard Thaler on the mental accounting behind a devilish rebate card.

2) Dan Goldstein on the taxonomy of defaults.

3) It takes an average of 66 days to form an (easy) everyday habit.

4) The New Yorker reviews procrastination. A book about it, anyway.

5) Does prospect theory kill the taxpayer receipt idea?

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How far has behavioral economics come?

Prospect theory now has its own facebook page, set up by Risk Psychology last April.

How far does behavioral economics have to go?

The page has three members. Supply and demand also has its own facebook page. Not sure when it was created, but there are 127 members, who seem to post items on the wall frequently.

For more on part I, click here.

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As part of a plan to introduce wellness programs, a Pittsburgh medical record services company needs its employees to fill out a questionnaire about their health. The company is experimenting with giving small rewards to everyone or big prizes to a few via a lottery.

Most employees at the company are getting a $25 cash reward for filling out the assessment. A group of 200 workers receive an additional $25 grocery card. A third group, of 400 employees, is divided into five-member teams that are enrolled in a weekly lottery. If the team wins, each member gets $100, plus the regular $25 reward, but only if he or she completed the assessment. The winners list is widely emailed each week, making it clear who’s won and who missed their chance. If all five members of the winning team filled out the survey, each person gets an additional $25.

Though the study is still under way, about 70% of the lottery group has completed the assessment, researchers say. That compares with 34% of those receiving the basic cash reward, and 43% of those getting an additional grocery card.

Some other behavioral economics inspired experiments are reported in the Wall Street Journal. Hat tip: Rags Srinivasan.

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