Opportunity Cost Neglect

Study Proposal #3:  Opportunity Cost Neglect (C) | 03OCT13

Claim

Opportunity Cost Neglect occurs in the general population as implicit alternatives are generally not accessed when considering a focal choice without explicit prompting. Presenting a residual cash condition or priming subjects prior to a situation of focal choice causes opportunity cost to be considered. I claim that graduates of economics degrees would be more likely to consider opportunity costs in their decision making with and without prompting. This would suggest that prior learning and training around the concept of opportunity costs leads to an integration of the concept in daily decision making. This is important because :

“Recognition of opportunity costs lead to better choices since the generation of alternatives is universally regarded as an essential component of good decision making(Hammond, Keeney, and Raiffa 2002).”

If we want members of our society to be good decision makers, we must understand what makes them consider opportunity cost by default. A first step would be to figure out if economics training actually improves people’s daily consideration of opportunity costs.

Study

A 2×2 experimental matrix with testing on graduates from a random distribution of non-economics programs as a control and economics graduates as the independent variable will be sufficient. The experiment will follow the same structure as study #5 in the Frederick et al. experiment on opportunity cost neglect

In the experiment, all participants will be given a survey with a choice between stereos presented in a control condition and a residual cash condition with an opportunity cost prompt. After completing their choice, participants will complete a quick survey on how much education in economics they have had (from none, to basic micro/macro, to which economics degree specialization). This information will provide a basis for follow up studies on what amount and type of economics knowledge helps people take into account opportunity cost spontaneously.

Hypothesis

    If my claim that economics graduates have opportunity cost ingrained in their decision making system is accurate, then this study will find that, compared to the general population, economics graduates’ choice share will be towards the cheaper option without prompting and towards the cheaper option to an even greater extent with prompting.

Implications

This study would suggest that people trained in economics have a higher chance of spontaneously considering opportunity costs. We could train people to make better decisions by integrating some degree of economics training into primary to post-secondary education.