Allais paradox, 78, 79, 80, 10-12, 104, 105, 106

Altruism, 30-32, 34, 36, 37, 43, 70, 74

American Airlines flight 11, 129

Anchoring effect, 81

Approximate optimization. *See* Approximate Nash equilibrium

Bank regulation, 37

Becker-DeGroot-Marschak elicitation procedure, 81, 122

Behavioral economics, ix, 2-3, 5, 7, 66, 77-80, 86, 90-91, 93, 95, 98, 99, 105, 107, 112, 114, 123, 124, 127-130

Beliefs, 6-7, 24, 26, 64, 68, 111-116

incorrect, 78, 83-85, 112, 113, 114

superstitious, 116

Best response, 29, 53, 67-68, 74

Biblical game, 33

polite, 34

Code of Hammurabi, 115-116, 118

Coefficient of relative risk aversion, 103-104, 106, 119

Common knowledge, 111, 119, 122

Competitive equilibrium, 15, 17, 18, 19, 82

Competitive market clearing equilibrium, 17

Competitive markets, 6, 14-17, 58

Consumption lock-in model, 110

Continuity axiom, 101

Cooperation. *See* Altruism

Coordination failure equilibrium, 44, 45

Decision node, 48

Deep Blue, 49

Diamond-Dybvig model, 40

Dominant strategy equilibrium, 24, 33, 34, 35

Drug use, 87

Dynamic programming. *See* Backward induction

Economic crises, 3, 83, 85, 96, 115

Efficiency wages, 83

Efficient-market hypothesis, 75

Endowment effect, 80

Epsilon equilibrium. *See* Nash equilibrium

Equity premium puzzle, 108, 109, 110

Evolutionary biology, 90

Excess volatility puzzle, 108

Expected utility theory, 80, 100, 102, 104, 106, 107

Exponential growth, 11

Extensive form game, 56

Fallacy of composition, 22-25, 33, 127

Game thoery, ii, 5-7, 14, 15, 24, 32-33, 38, 48, 50

behaviouraleconomics.indd 139

*See also* Mechanism design theory

Great Depression, 45

Habit formation, 64, 79, 109, 110, 127

Hail Mary pass, 107

Harrod-Domar model, 45

Health club memberships, 95, 99

Herding model, 86

*Homo economicus*, 1, 2, 5, 63, 94

Imagination, 91

Impulsive behavior, 97

Independence axiom. *See* Independence of irrelevant alternatives axiom

Independence of irrelevant alternatives axiom, 101-102

Iterated dominance, 35

Kandori-Mailath-Rob model, 44

Laboratory experiment, 7, 30-31

active, 113

passive, 113

Learning theory, 59, 61, 63, 72, 77, 79, 99, 112-13, 118, 119, 122

Logistic choice model, 68

Matching-pennies game, 69-70, 71, 72

Matrix of payoffs, 23

Mechanism design theory, 15

Nash equilibrium, 6-7, 8, 9, 10, 12-15, 17, 18, 24-25, 28, 29, 30-31, 34, 35, 44, 47, 49-50, 59, 60, 63, 67, 68-69, 73, 74, 77, 110, 117, 118-119, 120

and learning, 7

and randomization, 71

strict, 57

Negative externality, 25

Non-cooperative equilibrium. *See* Nash equilibrium Non-cooperative game, 5

Overconfidence, 84

Panic, 125

financial, 39

market, 39

Pareto efficiency, 34

Payoffs. *See* Utility

Perfect foresight equilibrium. *See* Competitive market clearing equilibrium

Pivotal-voter game, 7, 9-10, 66

Political game, 26

Precommitment, 50

Present discounted value. *See* Present value

Price stickiness, 84

Prisoner’s dilemma, 33-35, 39, 43, 51

Prisoner’s dilemma and fallacy of composition, 22-25

Probability distortion, 104

Probability matching, 124

Procrastination, 78, 91, 97-99

Prospect theory, 78, 79, 80, 102, 104-107, 109

Quantal response equilibrium, 68-69, 71-72, 74, 76

Quasi-hyperbolic discounting. *See* Discounting

Rabin paradox, 78, 80, 102-104, 106, 108, 110

Rational expectations equilibrium. *See* Competitive market clearing equilibrium

Rational expectations model, 2, 40, 41, 54

Recursive analysis. *See* Backward induction

Reduction of compound lotteries axiom, 100-101

Reference point, 104, 106-107, 109

Reinforcement learning, 124

and definite ending, 28

and indefinite ending, 28

Risk aversion, 102-104, 106, 108, 109

Risk premium, 103

Rush hour traffic game, 12-13, 26

Satisficing behavior, 64

Schelling game. *See* Coordination game Self-commitment, 94-95

Self-confirming equilibrium, 113-119

and economic crises, 115

and economic policy, 114

and social norms, 117

Self-control, ii, 2, 96-97, 110

Self-fulfilling prophecies, 41, 116n.

fairness, 32

reciprocal altruism, 32

spite, 59

Strategies, 28, 34, 35, 49-50, 56, 69, 70, 74, 110

Subgame, 47-61, 67, 112, 114, 117

Subgame confirmed equilibrium, 117

Subgame perfect equilibrium, 47, 49, 56, 58, 61, 67, 113

and robustness, 55

Systematic bias, 85

above average, 84

emotions, 85

limited attention, 85

prior information, 85

social pressure, 86

understimate adaptation, 85

Turing machine. *See* Universal Turing Machine

Ultimatum bargaining game, 57, 66, 113

Unbounded rationality, 1, 18, 19

United Airlines flight 93, 129

Universal Turing Machine, 126

Utility, 22, 23-25, 33, 36, 39, 69-70, 79, 88, 89, 101, 102, 105, 109

Von-Neumann Morgenstern utility function, 101

Voting theory, 7

Willingness to accept, 59, 80, 81-82

Willingness to pay, 17, 81, 86

Winner’s curse, 69

Zero sum game, 70