The presentation highlights the psychological aspects of human beings while making economic decisions.

1. PSYCHOLOGY MEETS ECONOMICS Sagar Pushp EMPD09 XLRI PSYCHOLOGY ECONOMICS MEETS

2. How is Economy related to Psychology? BEHAVIORAL ECONOMICS PSYCHOLOGY + ECONOMICS

5. Some Interesting Examples Example 1. (a) Consider an Indian Premier League match in Mumbai on a Saturday or a Sunday night. It is a regular phenomenon now and the hotel authorities are pretty certain that there will be huge rush from all over the country and even outside. All the available rooms will be booked. (b) Owing to above, hoteliers should hike the prices of their hotel rooms and try to maximize their profits. And moreover, it’s a regular phenomenon that happens every year. (c) But they don’t do it as they are reluctant to antagonize their customers with what may perceive as unfair prices. (d) Tomorrow, when the same person visits Mumbai for a business trip is less likely to choose the same hotel because he will feel cheated. (c) Do popular restaurants jack their prices on weekends, No, they don’t. (d) More than mere maximizing profits, it is the reputation which is at stake. For a short term benefit, one can not sustain long term losses.

6. Some Interesting Examples Example 2. (a) There is game with two volunteers, A and B. It begins with a toss and whoever wins has gets 100$ to divide between himself and other player. Other player has the option to accept the division or reject it. If he rejects, both return with no money. (b) So if a staunch economist wins the toss, how should he go about it? (c) How would someone else (irrational non-economist) divide it? (d) The Economist would divide with 99$ for himself and 1$ for the other player. (e) Someone else who doesn’t think like an economist would go for a 70- 30 or 65-35 distribution. (f) A normal person would know that even if he does a 90$ and 10$ division, the other person is more likely to reject the offer. (g) Because, an economist may think otherwise, but two non-economist would think alike.