Choice Anomalies & Learning Effects

In standard economics and behavioral economics models are used in order to simplify and model reality. In order to use these models one has to make some simplifying assumptions. One of these assumptions is that people, henceforth referred to as economic agents, are assumed to be rational and thus make rational choices. The reality learns, however, that economic agents do not always make rational decisions. The systematic occurrence of this behavior is referred to as choice anomalies. The problem of irrational choice can be approached in two ways, the former by looking at the properties of the economics agents, and the latter by looking at the environment in which the choice will be made (Simon, 1955). The proponents of the rationality assumption defend the failure of economic agents to make rational choices by the argument that there are significant learning effects for economic agents on the long term or repeated term (Kahneman & Tversky, 1986). This thesis will focus on the effect of learning tools on violations of the rationality, i.e. choice anomalies. The following research question will be answered by means of a literature study: “What are the effects of learning tools, such as advice, feedback, and the effect of the market, on choice anomalies? ” The first section covers the rationality assumption, its theories and its application in presence of uncertainty. The second section will cover the choice anomalies. Finally, the third section will cover the effects of learning tools, such as feedback, advice, and the effect of the market, on choice anomalies. We will finish with a conclusion.