Behavioral Economics

1. The opportunity to buy tickets to the NCAA basketball game is randomly assigned to some Duke University students by lottery. After the lottery the winners are asked how much they would sell their tickets for and the losers are asked how much they would buy tickets for. The seller's price is far higher than the buyer's price. This is an example of what aspect of prospect theory? Explain.
2. You are charged by your hospital to implement a program to stem MRSA infections. As your initiative is only given a few hundred bucks you decide to set your goal as increased hand washing by physicians. How might you leverage the Priming part of the MINDSPACE framework to increase hand washing? Explain.
3. Blue Laws prohibit sale of alcohol on Sundays. Are these laws effective in decreasing overall alcohol consumption for nave time-inconsistent consumers? Explain.
4. The relevant part of your utility function is summarized as: U(x) = X where X is the amount of time you have to play Xbox after school (but before doing your health economics homework). Unfortunately you need to subtract the commute time on your way home from school. Your normal way home from school takes 20 minutes, but there's a 50% chance you'll get caught at a light and have to wait an extra 4 minutes. There's an alternate route you rarely take that takes 10 minutes but there's a 10% chance you get stuck behind a train and it takes a full two hours. Rationally which path should you take? Show your work. [Hint: Think of all payoffs as losses and minimize the loss.]
5. Explain the pitfall in your normal route choice in terms of prospect theory.
6. But there is something strange about the utility curve that gives this result. Describe the characteristic of the utility curve in terms of risk and how changing it to match something more likely to be seen in the real world might change the answer to route choice.