Homework 1
Readings: Predictably Irrational, Ariely: Introduction, Chapters 1-3
Paradox of Choice, Schwartz: Ch 3, p.56-62 (availability, anchoring), p. 48-51 (peak-end)

1. Many examples of irrational judgments presented in class and the readings involve subjective judgments, such as how much you would be willing to pay for something. A possible objection is that subjective judgments cannot be considered “irrational” because they just reflect individual preferences. Does it make sense to characterize a subjective judgment as “irrational”? Why or why not? Justify your answer, and explain how irrationality could or could not be assessed for a subjective judgment. Rational judgments are usually made using cost-benefit, efficient analysis. …show more content…
We tend to perceive costs as relative even though money has an objective value. Give an example of a situation where relative perception of cost could cause us to spend more than we might otherwise. It can be your own example or from the readings. Briefly describe the situation and bias, and identify how relative perception of cost affects judgments. Also identity a possible strategy to avoid this kind of bias.

One example would be the use of the decoy effect as a sales strategy. For example, suppose you are in the mood for a vanilla milkshake and enter a café. Option A is that a Vanilla Milkshake alone would cost you $23HKD. Option B is a set, with a Vanilla Milkshake and a slice of Crème Brule would cost $60HKD. It is less likely you would buy the set, as it is significantly more expensive. However, if Option C was introduced, with the Crème Brule alone at $60HKD, it is likely that your mind would change as you realize that relative to Option C, the price of Option B is a great deal.

A possible strategy to avoid this kind of bias is to identify it when you see it happening, and ask yourself if we can afford to spend more, and if spending more is actually necessary to satisfy …show more content…
Although the risk is high in undeveloped areas, the risk is relatively low in developed areas due to not being very infectious, and being easy to maintain under a clean, maintained environment. The number of cases outside of Africa has been few so far, and deaths even less. It is believed that the epidemic can be controlled if it reached first-world countries. Even so, the developed countries and their citizens are reacting wildly as it appears so much in the media (making it seem much more common than it