Question

George has a ticket to see a Syracuse basketball game tonight, but there is a major snowstorm that will make driving very difficult. His wife suggests that he stay home. She reminds him that two weeks ago, he stayed home from going to a basketball game because of similar weather. George replies that the situations are different. He reminds her that he had been given the ticket for the game two weeks ago, but that he had paid $80 for the ticket for tonight’s game. Therefore, he was going to drive to Syracuse to see the game.

Use the concepts of behavioral economics to explain his behavior. Is he acting like an Econ or like a Human? What might explain his decision to go to the game tonight, even though the driving conditions are the same as they were two weeks ago?

Answer 1

Answer) One of the most fascinating subjects to explore is behavioural economics,it actually put to test human beings with real life situations and decisions,George here is facing the same situation as he faced couple of weeks back in terms of weather,the only difference here is that he has paid for ticket from his own pocket,this is a perfect example of a bias,it can be described as sunk cost fallacy,here George has already paid for ticket and he is going to risk further over the money which is already gone,this situation here can also be called as escalating commitment,where you are already committed and are going to do the thing knowing very well it will not go down well.So absed on above explanation he is acting as a human and not an Economist,his reasons for same as stated above raise very important aspects of behavioral economics that are blinded by biases,in this case it is the sunk money,it is like throwing good money after bad and moving on with pre established committment and not altering the course,to summarize his decision to drive is motivated by the pain he will feel of losing money if he doesn't go to the game and that pain is creating a bias which is not allowing him to take a rational decision.