02_P & B - Chapter 03

to explain, predict and influence human decision making in the economic context

Concept of «utility» plays an important role in economic decision-making Utility according to economic theory:

= Total satisfaction received from consuming a good or service

• Assumption: consumers strive to maximize their utility
• Utility directly influences the demand, and therefore price, of a good or service

Classical economics:

«depends on the value of the good received compared to the effort

Behavioral economics:

«depends just on the perceived advantages of the ‘deal’»

Utility is a measure of preference:
The product (bundle) with the highest utility is preferred

• Represents the economic benefit or loss of an acquisition
• Is the utility the buyer obtains from buying the good considering the price s/he pays for the good Is positive if price < utility for the buyer

Example of acquisition utility -> buying a car
Results from the newness of the car and the fact that you did not have a car before
-> Practical utility (mobility offered by owning a car)

• Quantifies the perceived utility of the transaction itself
• Utility that is derived (abgeleitet) from the difference between the price the buyer paid for the good and the price the buyer expected to pay

Expressed differently: Is the utility a buyer gains if he/she derives (abgeleitet) a greater benefit from the transaction than he/she had to pay for -> results from the offer itself: Do you perceive it subjectively as getting a good deal to buy the car at this price?

e.g. reduced price of an item / 2 for 1 product discout 

Permanently reduced prices do not create transaction utility because the reference point is adjusted

Air fares have dropped over the past decade Consequence: Even very low prices are simply considered as «OK» by the consumers but not as «a great deal»

see picture attached

Anomaly (Abweichung) in decision-making models of classical economics

Definition: "Auffälliger Konsum ist der öffentliche Verbrauch oder die Nutzung teurer Waren, Dienstleistungen oder Freizeitaktivitäten aus dem bewussten oder unbewussten Motiv heraus, den eigenen sozialen Status zur Schau zu stellen oder zu erhöhen, die eigene Zahlungsfähigkeit zu signalisieren und damit den eigenen Reichtum zur Schau zu stellen, obwohl es die Möglichkeit gibt, billigere Alternativen zu konsumieren, die die gleiche Funktionalität bieten. Im Prinzip ist auffälliger Konsum also ein aus rationaler Sicht unnötiger (und oft verschwenderischer) Konsum, der die wirtschaftlichen Grundbedürfnisse nicht befriedigt."

see picture attached

Invidious comparison (Verhasste Nachahmung): “Invidious comparison refers to situations in which a member of a
higher class consumes conspicuously to distinguish himself from members of a lower class.”

-> Also termed (bezeichent) snob effect

Pecuniary emulation (Finanzielle Nachahmung): “Pecuniary emulation occurs when a member of a lower class consumes conspicuously so that he will be thought of as a member of a higher class.”

-> Also termed (bezeichnet) band-wagon effect

Beim Veblen-Effekt zeigt sich die paradoxe Erscheinung, daß ein höherer Preis zu einer größeren Nachfrage führt als ein niedrigerer Preis. Die Nachfragesteigerung tritt in Abhängigkeit von der Preissteigerung ein. Es wird mehr gekauft, nur weil der Preis höher ist. Mit dem hohen Prestige-Preis wird hohes Einkommen und damit ein hoher sozialer Status demonstriert.

Damit ist ein Käuferverhalten gemeint, bei dem ein hoher Preis zu einer hohen Nachfrage führt, da die betreffenden Konsumenten mit einem Hochpreis-Produkt ein entsprechend hohes Prestige und Einkommen demonstrieren wollen. Beispiel: Eine Uhr wird nicht wegen ihrer Qualität gekauft, sondern wegen ihres Preises; soziale Schichten versuchen, sich durch ihren Konsum an die nächsthöhere Schicht anzunähern bzw. Zugehörigkeit zu dieser Schicht zu demonstrieren (»conspicuous consumption«).

Wir der Preis gesenkt, kann auch die Nachfrage zurückgehen.

• Snobs: rich consumers who signal to distance themselves from undesirable others to demonstrate their status

• Bandwagons: poor consumers who signal to associate themselves with desirable others to demonstrate their status

• Patricians are rich with need for association but not status. Use of quiet signals (knowledge, taste, connoisseurship)
• Parvenus are rich with need for association and status -> snobs
• Proletarians are poor without a need for status
• Poseurs are poor with a need for association and status -> bandwagons (Mitläufer)

Geltungskonsum

Counterfeiters copy more bags with a visible and loud logo than bags with a quiet logo

Interpretation: Visible brand logos are louder at signalling and the counterfeit version is more affordable to less affluent consumers (bandwagons) who want to associate themselves with desirable others

Prices for handbags with a visible and loud brand logo are lower than prices for handbags with a quiet brand logo

Interpretation:
Not all rich consumers are “snobs”.
-> Visible loud logos are better at communicating affluence and status. Results thus provide support for existence of patricians and the proposed framework

• Loud signalling with prominent brand logos
• Quiet in the form of knowledge, taste, or connoisseurship

• Having:
  Possessing a product, e.g. uniform, defines identity
   
• Doing:
  Using a product defines identity -> what can we do with it?
   
• Being:
  sharing, giving to others, and sacrificing defines identity

• Visible
• Exclusive
• Provide social esteem
• Desirable with a group of people

Differenciate between Publicly consumed products / Privately consumed products

Influence on identity (released by technolgical changes)

• Dematerialization -> virtual possessions/properties -> virtual friends, reputation, pictures
   
• Re-embodiment - alternative personality created online (multiplicity of identity -> it influence offline identity) e.g. fake identity online, games with a creation of an idenity
   
• Sharing:
  Shared places online -> personal information is shared very easy nowadays. This can lead to loss of control how inform. spreads. 
   
• Co-construction of self:
  Identity is co-created with others. -> Online video games competitions
   
• Distributed memory:
  Digital cues to a sense of the past, sometimes also digital clutter (Grümpel) -> Remender an old picture through the "Facebook Anniversary" / How many apps you actually need and which photos do you look trough again in the future?

an economic system that is based on people sharing possesions and services, either for free or for payment, usually using the internet to organize this

The sharing economy gives people access to products and services who could otherwise not afford it (e.g. rental of designer bags and watches)

• Reduces uniqueness and exclusivity
• Influences association and disassociation 

Classical economics:
Opportunity costs are a fundamental concept Considering opportunity costs is a
prerequisite for rational decisionmaking

Behavioral economics:
Frequently humans do not consider opportunity costs explicitly

• Quantifying the value of the next-best alternative you could not benefit from because of your choice
• Occur because we have limited resources and have to choose one option out of several alternatives
• Opportunity costs are not the sum of all options forgone but only the cost of not being able to benefit from the next-best option
• Opportunity costs can be money, time or other limited resources

DE: Als Opportunitätskosten bezeichnet man einfach gesagt den entgangenen Nutzen einer nicht gewählten oder nicht realisierbaren Handlungsalternative. Du verzichtest also auf eine Möglichkeit (Opportunität). Deshalb werden Opportunitätskosten auch manchmal Verzichtskosten oder Alternativkosten genannt.  

bsp. wenn ich entscheiden muss zwischen einer Party und dem Besuch bei meiner Oma. Entscheide ich mich für die Party sind die Opportunitätskosten das entgangene Essen, sowie die 20.-, die Oma einem immer zusteckt beim Besuch -> demach immer die Kosten für das Verpasste

Individuals frequently ignore these opportunity costs, i.e. they do not consider the benefits they could gain from choosing the cheaper option and buying something else in addition

Preferences do not change, even when the menu changes. But they are not stable. It depends on which options are presented. This results in several decision phenomena.

• compromise effect: 
  Tendency of individuals to choose the middle option; reason for this choice is extremeness aversion

• decoy effect:
  consumers tend to change the preference for a product, when a third product (decoy=Köder) will be added
  -> A product is asymmetrically dominated if it is worse in all respects than another, but compared to the other product it is worse in some respects and better in others
  -> This is because prices are very visible, easy to compare and can be assumed to
  be of a fairly high importance for consumers when choosing between options
  -> there are 4 strategies; R, R*,F and RF (plese see s.96)