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I made the total number of points available 137 instead of 100. This exam turned out to be slightly harder than the first, with students getting only 70% of the answers right, but the average numerical score was a cheery 96 points. The students were delighted! No one’s actual grade was affected by this change, but everyone was happy. From that point on, whenever I was teaching this course, I always gave exams a point total of 137,
To an economist, no one should be happier about a score of 96 out of 137 (70%) than 72 out of 100, but my students were.
The core premise of economic theory is that people choose by optimizing.
choosing the best from a limited budget, is combined with the other major workhorse of economic theory, that of equilibrium.
Economists get in trouble when they make a highly specific prediction that depends explicitly on everyone being economically sophisticated.
As Schelling notes, we rarely allow any identified life to be extinguished solely for the lack of money. But of course thousands of “unidentified” people die every day for lack of simple things like mosquito nets, vaccines, or clean water.
The finding is that, after the fact, we think that we always knew the outcome was likely, if not a foregone conclusion. After the virtually unknown African American senator Barack Obama defeated the heavily favored Hillary Clinton for the Democratic Party presidential nomination, many people thought they had seen it coming. They hadn’t. They were just misremembering.
hindsight bias fascinating, and incredibly important to management.
Ask people whether there are more gun deaths caused
Normative theories tell you the right way to think about some problem.
Pythagorean theorem is a normative theory of how to calculate the length of one side of a right triangle if you know the length of the other two sides. If you use any other formula you will be wrong.
People think about life in terms of changes, not levels. They can be changes from the status quo or changes from what was expected, but whatever form they take, it is changes that make us happy or miserable. That was a big idea.
The Weber–Fechner Law holds that the just-noticeable difference in any variable is proportional to the magnitude of that variable.
