The opening introduction to a course segment on behavioral economics

1. Introduction to decision- making and errorBehavioral economics & consumer decision-making Dr. Russell James III, Texas Tech University

2. In this class, we will learn that our decision-making processes might not be as perfect as we think. And we will learn how to improve them.

3. Quick test of speed in answering Answer the next question as quickly as you can (while still being accurate). Don’t worry, it is a simple question and it won’t count against you if you get it wrong. Ready?

4. A bat and ball together cost $1.10. The bat costs $1 more than the ball. How much does the ball cost? .05 .10 .55 $1.00 $1.10

5. A bat and ball together cost $1.10. The bat costs $1 more than the ball. How much does the ball cost? .05 .10 .55 $1.00 $1.10 Most Common Answer (Wrong) If the bat costs $1 more than .10 it costs $1.10, So, the bat and ball TOGETHER would cost $1.20.

6. Try a letters test How many times does the letter “F” appears in the following sentence? FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS

7. Your ability to identify letters How many times does the letter “F” appears in the following sentence? FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS

8. A test of your decision-making skills Let’s go with something simpler than numbers or letters. Identifying colors and shapes.

9. Identifying colors. You will see a mixture of words, non-words, and shapes. Say the COLOR (red, blue, yellow, or green) of each form you see, as quickly as possible.

10. 

11. green

12. blue

13. yellow

14. 

15. cat

16. red

17. 

18. red

19. blue

20. bloo

21. yellow

22. 

23. red

24. blue

25. blood

26. grass

27. bloo

28. red

29. 

30. green

31. cerulean

32. red

33. How many of you were able to name each color without any mistakes?

34. So, instead of numbers, letters, or colors, let’s try shapes.

35. Which table has the longest tabletop? Table on the left Table on the right Neither (both are of equal length)

36. Which table has the widest tabletop? Table on the left Table on the right Neither (both are of equal width)

37. Which table has the longest tabletop?

38. Which table has the longest tabletop?

39. Which table has the longest tabletop?

40. Which table has the longest tabletop?

41. Which table has the longest tabletop?

42. Which table has the longest tabletop?

43. Which table has the widest tabletop?

44. Now that you know, does the illusion go away?

45. Now that you know, does the illusion go away?

46. Now that you know, does the illusion go away?

47. Now that you know, does the illusion go away?

48. Now that you know, does the illusion go away?

49. Do we experience “decision illusions” in the same way we experience “optical illusions”?

50. If we make persistent errors in things we are very good at like numbers, letters, colors, and shapes… how likely is it that we are also subject to persistent, predictable errors in areas of consumer decision-making?

52. We will learn how these errors can cause disastrous, life-altering mistakes.And we will learn strategies to reduce these problems and make better decisions.

53. Slides by: Russell James III, J.D., Ph.D., CFP® Associate Professor Division of Personal Financial Planning Texas Tech University russell.james@ttu.edu Please use these slides! If you think you might use anything here in a classroom, please CLICK HEREto let me know. Thanks! The outline for this behavioral economics series is at http://www.slideshare.net/rnja8c/outline-for-behavioral-economics-course-component