UCD Economics Discussions
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1. Share some of your experiences with some of the biases we learned?I will give you the materials once you accept this assignment?. Did you find any of them to be more salient than others in terms of describing your decision-making, or the decisions-making tendencies of people you know? Are there any you think you are immune to, or which through training or education, youve managed to overcome? What were your initial responses to the choices presented in the section on framing effects? Did you decide the way most people do on those surveys, or did you take a different path? Did you have some reasoning behind the way you decided, or did you just go with your gut?2. Now that weve covered a number of different biases and illusions, think about the implications that each of these have for finance, both in terms of their effects peoples personal finance or wealth, as well as the impacts on markets more broadly. Which bias or illusion do you think has the greatest impact? Are all the potential impacts negative, or are there some that you feel could potentially be good? Feel free to reference biases from the previous class as well as this one. Or alternatively, if you have another favorite cognitive bias that you know from outside the class that you feel is more important to finance or economics, feel free to share it. Head over to the discussion board to share your thoughts.
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Saliency
?
Saliency bias = tendency to overweight more salient outcomes
?
Salient outcomes are:
? Prominent,
? Conspicuous, or
? Noticeable
1
Time-based Saliency
?
Time-based saliency = tendency to overweight recent events (and underweight
more distant events)
?
Example 1: Purchasing flood insurance after a flood
?
Example 2: Financial regulations after a financial collapse
2
Outcome-based Saliency
?
Outcome-based saliency = tendency to overweight payoffs that are different, or
striking, compared to others seen by the decision-maker
?
Bordalo, Gennaioli, and Shleifer (2013): Salience can explain several assetpricing puzzles
? Investor preference for assets with high, salient payoffs (i.e. high positive skew)
? Examples (from Barberis 2013):
Low valuations of conglomerates
Lack of diversification of household portfolios
Low average return of distressed stocks
Bordalo, Peter, Nicola Gennaioli, and Andrei Shleifer (2013). Salience and Asset Prices. American Economic Review: Papers and Proceedings.
103(3). 623-628.
Barberis, Nicholas (2013). Thirty Years of Prospect Theory in Economics: A Review and Assessment. Journal of Economic Perspectives.
Volume 27, No. 1. 173-196. (Page 181)
3
Outcome-based Saliency 2
?
Bordalo, Gennaioli, and Shleifer (2013): Salience can also explain the growthvalue puzzle
? Growth stocks have large, salient upside
? Value stocks have large, salient downside
? If people overweight the salient outcome ? Growth stocks overpriced and
vice versa
Bordalo, Peter, Nicola Gennaioli, and Andrei Shleifer (2013). Salience and Asset Prices. American Economic Review: Papers and Proceedings.
103(3). 623-628.
4
Framing
?
Framing Effects: People change their choices depending on how a question is
phrased
?
Consider this scenario: The country is preparing for the outbreak of an unusual
disease that is expected to kill 600 people. There are two alternative programs
proposed to combat the disease, and you must choose between the following:
Plan A
Outcome
200 people saved
Probability
100%
Plan B
Outcome
600 people saved
No one saved
Kahneman, Daniel (2011). Thinking Fast and Slow. New York: Farrar, Straus, and Giroux. 368-370.
Probability
1/3
2/3
5
Framing 2
?
Now which do you choose?
Plan C
Outcome
400 people die
Thinking Fast and Slow
Plan D
Probability
100%
Outcome
No one dies
600 people die
Probability
1/3
2/3
6
Framing 3
?
Which lottery do you choose?
Lottery A
Outcome
Probability
Win $240
25%
Lose $760
75%
Lottery B
Outcome
Probability
Win $250
25%
Lose $750
75%
Kahneman, Daniel and Amos Tversky (1984). Choices, Values, and Frames. American Psychologist. Vol. 39, No. 4, 341-350.
7
Framing 4
?
Examine both choices before making your decision
?
Decision 1:
?
Decision 2:
Lottery C
Outcome
Probability
Win $240
100%
Lottery D
Outcome
Probability
Win $1000
25%
Win nothing
75%
Lottery E
Outcome
Probability
Lose $750
100%
Lottery F
Outcome
Probability
Lose $1000
75%
Lose nothing
25%
Kahneman, Daniel and Amos Tversky (1984). Choices, Values, and Frames. American Psychologist. Vol. 39, No. 4, 341-350.
8
Anchoring
?
Anchoring is the tendency to rely on initial information, even if it is irrelevant
?
Visitors to the San Francisco Exploratorium were asked:
? Is the height of the tallest redwood more or less than 1,200 feet?
? What is your best guess about the height of the tallest redwood?
? Average guess: 844 feet
?
Another group of visitors was asked:
? Is the height of the tallest redwood more or less than 180 feet?
? What is your best guess about the height of the tallest redwood?
? Average guess: 282 feet
Thinking Fast and Slow, 123-124
9
Sunk-Cost Bias
?
Sunk-cost bias = Tendency to consider sunk costs in decisions
?
Example from Thinking Fast and Slow:
? Two basketball fans are planning to go to a basketball game. The first one paid
for his ticket. The second was on his way to buy the ticket, but received one
from a friend before he got there. The night of the game, an unexpected
blizzard is announced. Which of the two basketball fans do you think is more
likely to brave the weather to attend the game? The one who paid for the ticket,
or the one who got his ticket for free?
Source: Thinking Fast and Slow, 343
10
Endowment Effect
?
Endowment effect = tendency to overvalue what we have relative to how we would
value the same items if we did not have them
?
Experiment by Kahneman, Knetsch, and Thaler (1990):
? Give half the people in an experiment a coffee mug
? Ask study participants:
? Those with mugs: How much would you accept to sell the mug?
? Those without mugs: How much would you pay to buy a mug?
? Reservation price for those with mugs was twice as high as those without mugs
Kahneman, Daniel, Jack Knetsch, and Richard Thaler (1990). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of
Political Economy. Vol. 98, No. 6, 1325-1348.
11
Endowment Effect 2
?
Phase 2 of the experiment by Kahneman, Knetsch, and Thaler (1990):
? Introduce a third group who can choose between mugs and money
? Ask how much money would make them indifferent:
Group
Buyers
Choosers
Sellers
Reservation Price
$2.87
$3.12
$7.12
Kahneman, Daniel, Jack Knetsch, and Richard Thaler (1990). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of
Political Economy. Vol. 98, No. 6, 1325-1348.
12
Endowment Effect and Indifference Curves
?
Jack Knetsch randomly assigned
people either $4.50 or a set of 5 pens,
and asked a series of questions to
determine their indifference curves
between money and pens
?
The results are shown in the figure
?
Indifference curves are not supposed
to cross!
Source: Burton and Shah, Figure 11.1
13
Endowment Effect and Indifference Curves 2
?
Prospect Theory: Losses are more
salient than equivalent gains
?
You are offered a choice between
$10,000 more pay or 12 more
vacation days
?
Starting from point A, your indifference
curves are shown in the figure
Source: Burton and Shah, Figure 11.2, Thinking Fast and Slow, 289-291
14
Endowment Effect and Indifference Curves 3
?
One year later, you have the option to
change your decision
? Do you?
?
Your reference point has changed!
? Now you must give up either the
$10,000 or the 12 vacation days
?
Not willing to switch ? Indifference
curves are non-reversible
? (i.e. cannot move to prior curve and
get prior level of utility)
Source: Burton and Shah, Figure 11.2, Thinking Fast and Slow, 289-291
15
Caveats on the Endowment Effect
?
Endowment Effect does not apply when the endowment has no utility except as a
token for exchange
?
Examples when the endowment effect does not apply
? Exchanging one $20 bill for two $10 bills
? Vernon Smith: Endowment is tokens to be exchanged for money
? Buying items in a store
Thinking Fast and Slow, 294-295
16
Status Quo Effect
?
Status quo effect = Bias in favor of the default option
?
Example: State of Virginia Retirement System (VRS) established program in 1997
to match pre-tax employee contributions dollar for dollar
? Effectively allows $20 added to retirement account for price of $7
? Less than 20% of new employees signed up
? After making enrollment the default, 91% of employees stayed enrolled
Source: Burton and Shah
17
Disposition Effect
?
Disposition Effect = tendency to hold losing stocks for too long or sell winners too
soon
?
Assume you need to sell an investment. Which of these would you sell?
? Stock 1 has suffered a loss of $2000 and has a 50% chance of increasing in
value by $2500 and a 50% chance of a further decrease in value of $1000.
? Stock 2 has increased by $2000 and has a 60% chance of increasing in value
by $2500 and a 40% chance of decreasing by $1000.
?
People are more willing to sell losers in December (saliency of year-end taxes)
18
Conclusion
?
Many of the biases discussed in this class extend into peoples financial lives
?
Look to see how you approach decisions in your own life
19
Representativeness
?
Representativeness is the tendency to determine subjective probabilities based on
stereotypes
?
The subjective probability of an event is how likely a person thinks an event is to
occur
? May have no relation to the true probability
1
The example of Tom W
Tom W is a graduate student at the main university in your state. Please rank the
following nine fields of graduate specialization in order of the likelihood that Tom W is
now a student in each of these fields. Use 1 for the most likely, 9 for the least likely.
? Business administration
? Computer science
? Engineering
? Humanities and Education
? Law
? Medicine
? Library science
? Physical and life sciences
? Social science and social work
Source: Thinking Fast and Slow
2
Tom Ws profile
The following is a personality sketch of Tom W written during Toms senior year in high
school by a psychologist, on the basis of psychological tests of uncertain validity:
?
Tom W is of high intelligence, although lacking in true creativity. He has a need for
order and clarity, and for neat and tidy systems in which every detail finds its
appropriate place. His writing is rather dull and mechanical, occasionally enlivened by
somewhat corny puns and flashes of imagination of the sci-fi type. He has a strong
drive for competence. He seems to have little feel and little sympathy for other people,
and does not enjoy interacting with others. Self-centered, he nonetheless has a deep
moral sense.
Now please take a sheet of paper and rank the nine fields of specialization listed below by
how similar the description of Tom W is to the typical graduate student in each of the
following fields. Use 1 for the most likely and 9 for the least likely.
Source: Thinking Fast and Slow
3
Field rankings by similarity to the profile
?
Average rankings Kahneman received in the 1970s for how closely Tom Ws profile
matches a typical graduate student in each of the fields:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Computer science
Engineering
Business administration
Physical and life sciences
Library science
Law
Medicine
Humanities and Education
Social science and social work
Source: Thinking Fast and Slow
4
Results of the Tom W experiment
?
Kahneman asked participants to rank the likelihood that Tom W was now a
graduate student in each of the fields
? Participants were given the objective base rates, indicating the size of each of
the fields
?
The rankings he received almost exactly mirrored the rankings people gave for
how closely Tom Ws profile matched the stereotype of grad students in each field
? Even though he told participants the profile was unreliable!
?
The base rates had almost no impact at all
Source: Thinking Fast and Slow
5
Another example of representativeness
?
You see someone on the New York City subway reading The New York Times.
Which is more likely?
A.
She has a PhD
B.
She does not have a college degree at all
Source: Thinking Fast and Slow
6
The example of Linda
?
Linda is thirty-one years old, single, outspoken, and very bright. She majored in
philosophy. As a student, she was deeply concerned with issues of discrimination
and social justice, and also participated in antinuclear demonstrations.
?
Which of the following is more likely?
A.
Linda is a bank teller
B.
Linda is a bank teller and is active in the feminist movement
Source: Thinking Fast and Slow
7
The Conjunction Fallacy
?
Kahneman and Tversky found that 89% of undergraduates and 85% of students in
Stanfords Graduate School of Business (who had taken several classes in
probability, statistics, and decision theory) believed option B was more likely than A
? But B is a subset of A!
? Impossible for B to be more likely
?
The conjunction fallacy is the tendency to judge the conjunction of two events to be
more likely than any one of those events occurring in general
Source: Thinking Fast and Slow
8
Reading into Randomness
?
You flip a fair coin 10 times. Which of the following sequences is most likely to
occur? (H = heads, T = tails)
A.
HT HT HT HT HT
B.
HH HH HH HH HH
C.
TT TT TT TT TT
D.
HT TH HH HT HH
9
Reading into Randomness 2
?
Many assume D is most likely
?
In reality, all four sequences are equally likely (1 in 1024 chance)
10
What if the flips were stock prices?
?
The charts at the right are graphical
representations of the coin flip
patterns, where a head is an increase
in price and a tail is a decrease
?
Technical analysis assumes these
charts represent legitimate patterns
? But all of them are potentially the
result of randomness
Burton and Shah, Figure 12.1
11
Hot Hand Fallacy
?
The hot hand fallacy is the belief that streaks of success are indicative of future
success
? Discovered by Gilovich, Vallone, and Tversky (1985)
?
For years, the academic community though that those who believed in the hot
hand simply misperceived random sequences
? There is no such thing as a hot hand in professional basketball
The hot hand
is entirely in the eye of the beholders, who are consistently too quick to perceive
order and causality in randomness. The hot hand is a massive and widespread
cognitive illusion. Daniel Kahneman, Thinking Fast and Slow, 116-117
Gilovich, Thomas, Robert Vallone, and Amos Tversky (1985). The Hot Hand in Basketball: On the Misperception of Random Sequences.
Cognitive Psychology. 17, 295-314.
12
The Hot Hand rises again
?
Miller and Sanjuro (2016) showed that the hot hand is actually real
?
Gilovich, Vallone, and Tversky had made a math error in the original paper
? Oops!
?
After correcting for the error, Miller and Sanjuro showed that the probability of
success following a streak is actually significantly higher than Gilovich, Vallone,
and Tversky originally calculated
? See Miller and Sanjuros article in The Conversation for the intuition of how this
works
?
Takeaway: Sometimes what seems like a pattern really is a pattern!
Miller, Joshua and Adam Sanjuro (2016). Surprised by the Gamblers and Hot Hand Fallacies? A Truth in the Law of Small Numbers. IGIER
Working Paper 552.
13
Areas with the lowest rates of kidney cancer deaths
?
This map from Wainer and Zwerling
(2006) shows that the counties in the
U.S. with the lowest rates of kidney
cancer deaths tend to be rural,
sparsely populated, and in traditionally
Republican areas of the Midwest,
South, and West.
?
How do you explain this?
Wainer, Howard and Harris Zwerling (2006). Evidence that smaller schools do not improve student achievement. Phi Delta Kappan. Vol. 88,
No. 4, 300-303.
14
Areas with the highest rates of kidney cancer deaths
?
This map from Wainer and Zwerling
(2006) shows that the counties in the
U.S. with the highest rates of kidney
cancer deaths tend to be rural,
sparsely populated, and in traditionally
Republican areas of the Midwest,
South, and West.
?
How do you explain this?
Wainer, Howard and Harris Zwerling (2006). Evidence that smaller schools do not improve student achievement. Phi Delta Kappan. Vol. 88,
No. 4, 300-303.
15
Small Sample Bias
?
In the previous two maps, many of the counties with the highest rates are adjacent
to those with the lowest rates
?
The maps are reflecting statistical variance, not anything fundamental about the
counties themselves
? Smaller samples ? Higher variance
?
Small sample bias is the tendency to place too much credence on results derived
from small samples
16
Probability Neglect
?
Probability neglect is the formation of subjective probabilities based on media
coverage and emotional saliency, ignoring the true probabilities
?
Examples from Thinking Fast and Slow:
? 80% of survey respondents believed accidental death to be more likely than
death by stroke
? Reality: Strokes cause almost twice as many deaths as all accidents
combined
? The majority of respondents believed tornados killed more people than asthma
? Reality: Asthma caused 20 times as many deaths as tornados
? Death by botulism was believed to be more common than death by lightning
? Reality: Death by lightning is actually 52 times more likely
17
Illusions of Skill and Talent
?
The illusion of skill or the illusion of talent relate to our belief that a persons ability
to execute a task or succeed is driven more by ability than luck or chance
? Talent and skill do exist!
? But luck is also a factor
?
Kahneman expressed his view of success the following way:
Success = Talent + Luck
Great Success = a little more Talent + a lot of Luck
Thinking Fast and Slow, 177
18
Reversion to the mean
?
Luck appears statistically random
?
Kahneman analyzed golf scores on Day 1 and Day 2 of a tournament
? If talent is the only predictor of success, the gap between the highest and lowest
player should widen from Day 1 to Day 2
? If luck is a major component, the gap should shrink
?
Result: The gap shrinks
? Scores exhibit regression to the mean
?
Result still holds if you use Day 2 scores to predict Day 1 scores
? Excludes a causal explanation for the regression to the mean
Source: Thinking Fast and Slow
19
Implications for Finance
?
People tend to neglect the importance of luck in evaluating the performance of
portfolio managers (as well as their own performance)
?
Fund managers who predicted the 2008 crash saw huge inflows into their funds
following the collapse
? But since that time have significantly underperformed
?
People make a lucky bet and we assume its because they were smart rather than
lucky
? This is the illusion of talent
Kishan, Saijel. For Hedge Fund Stars, Being Right in 2008 Proved to be a Curse. Bloomberg Businessweek. September 12, 2018.
https://www.bloomberg.com/news/articles/2018-09-12/for-hedge-fund-stars-being-right-in-2008-proved-to-be-a-curse (retrieved 10/12/18)
20
Overconfidence and the Illusion of Skill
?
Barber and Odean (2000) examined individual investment performance of 66,000
households over a 6-year period
? Most active investors earned average return of 11.4%
? Market return over this period was 17.9%
?
Results are consistent with the notion that trading results from overconfidence
? Inconsistent with the notion that trading comes from rational expectations
?
Barber and Odean (2001) found that men trade 45% more than women
? Consistent with psychological research that men are more overconfident than
women in finance
? Trading reduced net returns by 2.65 percentage points for men and 1.72
percentage points for women
Barber, Brad and Terrance Odean (2000). Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.
Journal of Finance. Vol. 55, No. 2. 773-806.
Barber, Brad and Terrance Odean (2001). Boys will be boys: Gender, Overconfidence, and Common Stock Investment. Quarterly Journal of Economics.
21
Illusion of Superiority
?
The illusion of superiority is the belief that we are above average along a particular
metric
?
Welcome to Lake Wobegon, where all the women are strong, all the men are
good-looking, and all the children are above average. Garrison Keillor
?
When applied to skills, the illusion of superiority is called the Dunning-Kruger effect
? Kruger and Dunning (1999) found that on average, 66% of students believed
themselves to be above average in test performance
? Mathematically, only 50% of people can be above average
Kruger, Justin and David Dunning (1999). Unskilled and Unaware of It: How Difficulties in Recognizing Ones Own Incompetence Lead to
Inflated Self-Assessments. Journal of Personality and Social Psychology. Vol. 77, No. 6, 1121-1134.
22
Dunning-Kruger Effect illustrated
?
This chart from Kruger and Dunning
(1999) shows students perceptions of
their own abilities on a logical
reasoning test, compared to their
actual test performance
?
The discrepancy between actual and
perceived ability was largest for the
worst-performing students
?
Students ranking in the 12th percentile
believed themselves to be in the 62nd
Kruger, Justin and David Dunning (1999). Unskilled and Unaware of It: How Difficulties in Recognizing Ones Own Incompetence Lead to
Inflated Self-Assessments. Journal of Personality and Social Psychology. Vol. 77, No. 6, 1121-1134.
23
Illusion of Superiority
?
Dunning and Kruger found similar results on tests of grammar and ability to
recognize humor
? The worst performers believed themselves to be among the best
?
The fundamental cause of the trouble is that in the modern world the stupid are
cocksure while the intelligent are full of doubt. Bertrand Russell, The Triumph of
Stupidity, 1933
?
In finance, success is often defined as beating a benchmark (being above
average)
Kruger, Justin and David Dunning (1999). Unskilled and Unaware of It: How Difficulties in Recognizing Ones Own Incompetence Lead to
Inflated Self-Assessments. Journal of Personality and Social Psychology. Vol. 77, No. 6, 1121-1134.
24
Illusion of Validity
?
The illusion of validity is the tendency to believe in the validity of our own
conclusions, even in the face of contrary evidence
?
Kahneman attributes this illusion to two phenomena:
? Confidence is coherence
? We derive confidence from the coherence of our internal story, not from the
quality of the evidence
? What you see is all there is (WYSIATI)
? We believe our perceptions of reality are accurate and complete
? Theyre not!
Source: Thinking Fast and Slow
25
The Illusion of Validity demonstrated
?
Kahneman and Tversky showed study participants one side or another of a legal
argument and asked them to judge the case
? One group saw the plaintiffs side
? One group saw the defendants side
? One group saw both sides
?
Groups who saw one side tended to favor that side, even though they knew their
information was biased
?
People who saw one side were more confident in their conclusions than those who
saw both sides
Source: Thinking Fast and Slow
26
Conclusion
?
It is one of the commonest of our mistakes to consider that the limit of our power
of perception is also the limit of all that there is to perceive. C.W. Leadbeater,
Man, Visible and Invisible, 1902
?
Much of finance hinges on stories
?
Be aware of your own biases and illusions when constructing your own stories
27
The two biases that resonated with me the most from this week’s lecture and readings are the anchoring and sunk-cost biases:
Anchoring bias: The residential real estate market has spun out of control across America. In Dallas/Fort Worth, average list prices are up over 25% from a year ago, and that’s
before bidding wars begin. When my wife and I visited here in the summer of 2020 on a house hunting trip (part of a corporate relocation), we had a certain price range in mind based
on recently sold homes and current listings. We have not been able to find a home yet (lost several homes due to being outbid, unsatisfactory inspections, and even on two
occasions the sellers cancelled the sale as they become overwhelmed with trying to find another home to move to). After this week’s lecture and readings, I think I’m suffering from
anchoring bias. The price range we could have bought a home for last year are stuck in my mind – they were my initial impressions of what it would cost to secure a family home here.
Every time I look at a new listing, I have trouble justifying paying more than last year’s prices, and that has caused me on several occasions not to even make an offer (and to regret it
later).
Sunk-cost bias: I’ve seen the sunk-cost bias manifest itself in my own life and that of others. A good friend of mine went on a trip recently because he had an airline voucher that
was about to expire (a ticket he cancelled well over a year ago that cost him about $300). He felt compelled to use the voucher and traveled to Florida during hurricane season, only to
end up spending most of his vacation inside the hotel (too stormy to enjoy the beach). So the trip ended up costing him much more (ended up eating more expensive hotel food), and
there wasn’t much to do in the area. He would tell you now that it would have been better to simply forfeit the voucher.
The Status Quo Effect case about retirement matching is one that fortunately I was educated against when I first started in the financial industry. Early on, several of my trainers and
managers explained to me the time value of money, and especially the benefit of employee matching. There was no default contribution to 401ks back then for employees like me – you
had to call HR and change your election from zero to a different % – it would have been all too easy to let the status quo dictate my desire to contribute to my retirement accounts as a
younger worker (and treat the potential retirement benefit as immediate cash I could spend now to fuel my lifestyle). I’m glad I was urged to make the call back then.
After learning about the status quo effect, I realized I’ve experienced it just recently, in a big way. I moved apartments in NYC, and the new place in Brooklyn had been vacant since
March of 2020. After moving in, it came time for my partner and I to select providers for our Internet, electricity, and gas. Instead of doing a proper search of the most efficient or
affordable options, we settled for the providers that the previous tenant had paid for, along with the rest of the building’s tenants. We had also asked a few of our friends for their input,
and sure enough they all either had arrived at their decisions in the same manner as we had, or they had already had a good history with these providers. We stuck with the same
providers because we were familiar with their rates, choices, and customer service, not necessarily because we did logical price comparison (it turns out that other providers offer the
same services for cheaper prices).
I
I also experienced the status quo in my personal finance habits not long ago, I realize. I tend to be very risk averse as it is, but I elected to park the savings for a down payment on a
future house/apartment in an index fund tied solely to the S&P 500 and a Vanguard growth ETF. I did so because a lot of my close friends, who are more well-versed in personal finance
than I, have done so, specifically in the very same funds. I don’t regret the choice, since they’re funds I’m very comfortable with keeping money in for a long period of time, but I see
how the status quo effect was reflected in my choices.
There is much Sunk-cost bias in my life, they can be big or small, but they do cause a lot of trouble. I got a switch two years ago because the price was too reasonable to be accurate,
so I bought it even though I do not play games. To make the switch work, I followed up by buying many game cards and taking special classes to learn how to play them. I carried it
with me wherever I went for two years because that made it worth it, even if I did not need it. The time and money spent on it, I think, has exceeded the value of the original purchase
in some sense. This year, after re-planning my time, I decided to sell it and end the sunk cost, and now I have more free time to do the things I love.
Another example of Anchoring bias: I like lego very much, and the price of lego fluctuates depending on when it goes out of print and availability. At the beginning of this year, I wanted
to get the “A ship in a bottle” model (the price was $69.99). Considering the discount situation in previous years, I expected to buy it at around $50. However, because of the sudden
out-of-print and some merchants stocking up, the price has gone up. It has greatly exceeded my budget, and I am unwilling to pay for it cause I do not particularly like this one. So
much premium can only be a regret.
Through the study of economics-related knowledge, I think I have been more sensible to carve sunk-cost bias. However, we are still challenging to detect the bias initially. In most cases,
we would try to correct the bias only to accumulate to a certain amount of the imminent qualitative change.
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