By Erik Angner
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Extra info for A Course In Behavioral Economics
Certainly, in many cases this is right: if you fail to consider the opportunity cost of using your free ticket to go to Vegas, for example, it might be acceptable to call you inational. But the fact that considering all possible alternatives is so very demanding - when getting married, for instance - means that there can be legitimate disagreement about whether failing to consider opportunity costs under those conditions is irrational or not. And if it can be rational to ignore opportunity costs, the theory that we have studied here is normatively incorrect.
As always, the theory does not say whether you should choose Coke or Pepsi. However, it does say a few things about how your choices in one part of the tree should relate to your choices in other parts of the tree. Let us assume, for simplicity, that your universe consists of these two alternatives only, and that you are not indifferent between them. If you choose Coke rather than Pepsi at node #2, you also have to choose Coke rather than Pepsi at node #3; if you choose Pepsi rather than Coke at node #2, you also have to choose Pepsi rather than Coke at node #3.
Today, one of my good customers came into my store. He had purchased a set of tires from a separate online tire seller and came to get them installed. Before we started working on his car, he asked what other options would have been available to him. I proceeded to tell him about a brand new tire that I s tocked that was overall much better than the one he bought - better traction features, better mileage, etc. I politely asked if he would like to buy them and have me send the others back. His response was: "No, that's okay, I've already bought these.
A Course In Behavioral Economics by Erik Angner