Behavioural Economics Assignment

Behavioural Economics Assesment

Behavioural Economics is a study that studies the effects of psychological, social and economic decisions of individuals and institutions and the consequences for market price, returns, and resource allocation. In this project, I will be studying a conducted scientific study to test a behavioural concept related to Intertemporal Choice. Economic experiments to test behaviour have become a tool for educational purposes and to understand the concepts more realistically, analysing the situation involving real money or products.

INTRODUCTION

Intertemporal choice is a study in behavioural economics that is the affect of people’s choices at various points in time. It is how people make choices about what and how

Decisions that involve tradeoffs between outcomes that occur at different points in time are called intertemporal choices. Intertemporal choices are analyzed by economists using the discounted utility model which runs on the assumption that people evaluation varies on the benefits and costs resulting from a decision in the same way when the losses or gains are evaluated from an investment in the financial market, when time is taken into account exponential discounting is used because exponential discounting captures the time consistency. Discounted utility is used to determine the intertemporal choices made by the individuals and is also the tool for public policy analysis involving public good and social welfare. Also, people tend to exhibit a special type of time-inconsistent preferences that are called quasi-hyperbolic or present-biased. . Like risk or social concerns, the timing of outcomes poses unique problems that decision makers need to

Why individuals make charitable contributions and voluntarily provide public goods is an important question in modern society. The other question arises is why people contribute when it is in their best interest to free- ride the contribution. Many theories proposed an explanation which stated that it is because of altruism, social information on behaviour and warm-glow(impure altruism). The individuals are impure altruists motivated by the realisation of the public good and the warm-glow from donating. However, people can be pure altruists only motivated by the realisation of public good or they can be solely impure altruists motivated by the warm-glow giving. Humans are social creatures and they rely on various external cues while making decisions in a particular situation. Although the whether the donors are pure altruists, impure altruists or warm-glow givers, it does not affect the prediction of behaviour. Due to discounting there will be a difference between the give more in future and give more in present donors as it does not withstand whether the donors have time consistent preferences or not. But the difference in the donations will be larger for donors with present-biased preferences as compared to the time-consistent