Answer the following problem about Behavioral Economics that we discussed in class: New-classical Economics Behavioral Economics...

Answer the following problem about Behavioral Economics that we discussed in class:

	New-classical Economics	Behavioral Economics
Rationality
Stability of Preferences
Capability for making mental calculations
Ability to assess future options and possibilities
Strength of willpower
Degree of selfishness
Fairness

1. Using your own words, fill in the table for new classical economics column.

2. Using your own words, now fill in the table for the behavioral economics column.

3. Give an example of how you and/or a friend fight self-control problems with pre-commitments.

4. Give an example of how you and/or a friend have been influenced by anchoring and the status quo bias.

5. How are some online students at PCC influenced by the overconfidence effect and planning fallacy?

Expert Solution

RATIONALITY IN NEW CLASSICAL ECONOMICS

it is one of the most important principla of new classical economics
it holds economic agents like firms and individuals from expectaions on future values of economic variables like incomes and prices by analysing all the economics information available
rational expectation are held on the currents economic status and policies that the government follows

RATIONALITY IN BEHAVIOURAL ECONOMICS

Rationality has a social connection and cannot be a property of an individual. it is a social context
a person should understand the rationality of other in their environment
state of equlibrium is hard to trace out
it is difficult to be rational with various people of various tastes and skills
it is a complex demand curve and comples in clarification of data, savings and wealth.

STABILITY OF PREFRENCE IN NEW CLASSICAL ECONOMICS

There is no role of stability prefrence
it is interpreted that all the individual would have the same prefrence in the same way
they would interpret the same information in the same way
it ignore all the rest that causes confusion to get to a clear data
all uncernity is excluded

STABILITY OF PREFRENCE IN BEHAVIOURAL ECONOMICS

states that human have stable prefrences that maximises their behaviour
their capability of making human calcolation in new classical economics
it provides a micro economics foundation for macro economics
it is a rigirous foundation based on microeconomics
new classical economics is the first term to use i the nnew school of economics
it is based on the principal of ability to self correct
considered the most superior institution in aloocating resources
it is assumed that all individual maximise their economics activity
based on three pespectives: productivity, capital an labour
productivity a measure of aggregate production effeciency
assumes that all agents maximise utiity on basis of rational expectations
these model have very low explainatory and predictivity power
magnitude of actual cycles and durations both simultaneouslycould not be explained
there is a controll in the real economy, for it highlights the conditions in which the economics policies can be effecetive
prices are always flexible and the markets is always in equlibrium in the new classical economy

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