Unit 05 – Consumer Utility Theory & Behavioral Economics Student Activity
Lesson overview: Economists are known for assuming that humans are “rational” in their thinking. In our economic models, we assume we are dealing with prototypical “Homo economicus” who logically attempts to maximize his/her utility (happiness or satisfaction) as a consumer and economic profit as a producer.
Are people really that logical and rational in the real world? Where do emotions come into play? There are two parts to complete for this activity.
Objectives:
By the end of this lesson, you will be able to reflect on ways you sometimes make decisions that are not in your best interest.
summarize one of many cognitive biases and explain how people may make faulty decisions because of this bias.
Resources needed: internet connection, word processing software.
Part A – The 11 Ways That Consumers Are Hopeless at Math
Part A Instructions – (Time needed: 45 minutes): In this part you will read, hopefully, a fun little article on all the ways consumers make mistakes when buying goods and services. Perhaps you can see yourself in some in the 11 ways!
Step 01: Click on to the following article from The Atlantic by Derek Thompson entitled: The 11 Ways That Consumers Are Hopeless at Math. Read through the article and see if you can relate to some of the errors in judgement typical consumers are prone to make.
Step 02: Compose a ¾ page to one-page essay discussing two or three ideas from The Atlantic article you found interesting or with which you could relate. Feel free to share your experiences shopping. Provide details from The Atlantic article; avoid being too vague or repetitive.
Part B – Cognitive Biases
Part B Instructions – (Time needed: 25 minutes): In this part you will learn about a cognitive bias from a list of dozens psychologists and behavioral economists have investigated.
Step 01: Click on a Wikipedia List of cognitive biases. Scroll through the entire list – there are three subsections – and pick one bias that seems interesting to you. You can click on any bias in the list to get more information from Wikipedia. Feel free to also do an internet search to get more information. Try to present examples. Be sure to reference your sources, especially if you use a source other than Wikipedia.
Step 02: Continue your above essay from Part A by adding a ¼ to ½ page summary of the bias you chose. Your overall essay, with discussions of Parts A and B, should be a good page or a little over a page.
