Time Discounting Consciously ignore relevant information that is relevant to the solution of the problem.

. Normally sticking to the status quo Ex) Fox & the grapes Intertemporal Discounting Constant k Linear - V(x) = X - kT Exponential - V(x) = x * e-kT Exponential model makes more sense because the amount that we discount depends on the amount received. Hyperbolic - V(x) = x / (1 + kT) ^Accounts for difference in time delay from present and future. K is no longer constant. Explains why: $10 this week > $11 next week and $10 in 51 weeks < $11 in 52 weeks Moving Forward vs. Moving Backward Self Control ability to override, alter, or change instinctual response Ex) Story of the Sirens Committing in advance to limit the future self Ex) Take Alli in the morning, which doesnt allow your body to absorb fat leading to diarrhea Mischels Marshmallow Experiment Kids that waited extra 15 minutes for marshmallow scored higher on SAT. Theories of self-control 3 Theories Self-control as skill Something that is acquired and applied when necessary. Can do it just as well on the second time. Self-control as resource (or strength) To resist temptation requires strength Exerting self-control depletes a limited resource Might not be able to do it second time Self-control as cognitive schema The self calculates costs and benefits, plans strategies, and these calculations determine the course of action Will be better in the future, learning from experience Thought and behavioral suppression lead to more impulsive spending in experiments, which points to self-control as a resource. The Planning Fallacy Why? 1. People tried to focus on eliminating planning fallacy too much. But even when they were asked to be accurate, they still underestimated the time it took to prepare for test. 2. People werent using relevant past experience, only looking ahead. Inside vs. Outside View How to de-bias the Planning Fallacy? Harder for projects with a lot of steps 1. Take the outside view consider similar projects in the past and make estimate. 2. Unpack Consider all the steps needed to complete task OVERCONFIDENCE Types of Overconfidence:

1. Overprecision: People overestimate the accuracy of their personal beliefs (narrow confidence intervals) 90% CI often contain the correct answer 50% of the time. Psychologists and physicians are overconfident that their diagnoses are accurate 2. Overplacement: On average, people believe themselves to be better than others (majority of people report themselves to be above the median) 93% American drivers rate themselves above the median Potential market entrants think they are better so a lot compete 68% of college professors believe their teaching abilities to be in top 25% 3. Overestimation: People overestimate their abilities, level of performance or control. Planning Fallacy Self-enhancement: correlation between self-rating and skill not very high; overestimate the likelihood they will engage in desirable behaviors (voting); like the letters in our own name; System 1 not system 2 Illusion of Control Choosing lottery ticket > Being handed a ticket; Overly optimistic about things they cant control (motorcycle accidents) Benefits to Overconfidence: Followers prefer confident leaders. However, unwarranted confidence undermines credibility We want leaders to express certainty Bound to be disappointed by leaders failure to deliver Use confidence to motivate others and gain credibility Avoid overconfidence bias in making decisions PREFERENCE CONSTRUCTION Economic vs. Psychological Models of Preference When Preferences are Constructed Preferences are unclear when: 1. Decision elements are unfamiliar Ex) description of food in another language 2. Choices present a conflict/tradeoff Ex) Far cheap house vs. Close expensive house 3. When choices are complex Ex) Many choices Preference Reversals Elicitation Mode What exactly is being asked? Coherent Arbitrariness People only want things that are somewhat hard to obtain Ex) Tom Sawyers White Fence Initial valuations of the experience were largely arbitrary Violation of invariance: preferences reverse when a stimulus is presented differently Subsequent valuations exhibited coherence with respect to the initial valuation Award Deny Custody of Above and Below Average Parent Evaluation Mode Compared to what? Joint Evaluation Evaluation of multiple options simultaneously People focus on both cues Separate Evaluation Evaluation of a single option

People focus on the easy to evaluate cue Irrelevant Alternatives Regularity Condition The market share of an option cannot be increased by additional options

Preferences arent always consistent, frequently theyre constructed at the time of judgment. People are often inconsistent with their preferences. Preferences vary according to the way and context in which alternatives are evaluated Irrelevant features of our context can profoundly influence how we perceive value and what we prefer Factors in Construction Propinquity Effect One of the simplest determinants of attraction is proximity people you see more often are more likely to be friends and lovers functional distance Mere Exposure The more exposure to stimulus we have, the more likely we will like it even if subliminal Ads Expectations Bottom-Up Processes Reflect characteristics of stimuli that are appealing to senses Top-Down Processes Reflects perceivers desires, beliefs, and expectation Expectation of how a beer tastes can impact it.