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On Behavioral Economics, Loss Aversion, And My Hatred Of Daylight Savings Time…

March 11th, 2012 · 6 Comments
Behavioral Econ

In case you weren’t already aware, I am a behavioral economist. One of the seminal papers in this field describes a concept called prospect theory and argues that it’s a better model of how people make choices over risky outcomes and interpret pleasure and pain than the traditional models of risk aversion.

Prospect theory postulates that people code outcomes as either gains or losses compared to a neutral reference point (as opposed to considering only the final outcomes themselves). Furthermore, prospect theory suggests that people dislike losses more than they like equivalent gains. Specifically, people dislike losses about twice as much as they like gains. Put graphically, the value function of possible outcomes looks something like this:

While it isn’t necessarily the case that people acclimate to a new reference point after each gain or loss is realized, it’s most likely the case that, over time, the status quo becomes the neutral reference point.

This, in a nutshell, is why I hate Daylight Savings Time. Think about it- prospect theory, as well as my own experience, tells me that I hate springing forward more than I like falling back, if for no other reason than springing forward is coded as a loss of an hour and falling back is coded as the gain of an hour. Since these events are spaced months apart, my brain probably doesn’t bracket these changes in a way that makes them cancel out and instead acclimates to a new reference point before each subsequent change. It them follows that each fall back/spring forward pair (and not the other way around, since I was born in September) makes me progressively more and more unhappy.

Luckily for Daylight Savings Time, I will never be able to show this outcome empirically because there are too many confounding factors that also make me progressively more cranky over time. Maybe I’ll move to Hawaii- I hear it’s nice there. And time-consistent. 🙂

Tags: Behavioral Econ

6 responses so far ↓

  • 1 happyjuggler0 // Mar 11, 2012 at 8:53 pm

    One concrete reason for hating the end of DST is that if you go to bed at the same time as usual, and wake up at the same time as usual (per the clock), then you get one less hour of sleep.

    Losing sleep has a tendency to make people cranky.

    By the way, DST uses more energy than it “saves” (1), and is hence bad for the environment (at least until we have clean energy…don’t hold your breath), not to mention bad for your wallet, or purse, or whatever econbabes use….

    (1) http://www.physorg.com/news187946326.html?xid=rss-fullcontent

  • 2 happyjuggler0 // Mar 11, 2012 at 9:01 pm

    Er, I got that bass ackwards it seems. You lose an hour of sleep in the spring the night DST takes effect.

    Doh!

  • 3 Punditus Maximus // Mar 11, 2012 at 10:43 pm

    It gets worse — because there are no net benefits of DST, all you get are the downsides of adjusting clocks, etc.

  • 4 Ben Trevino // Mar 12, 2012 at 3:30 am

    It IS nice here. And time consistent. AND we have economists 🙂

  • 5 John // Mar 21, 2012 at 11:45 am

    My gains from falling back far outweigh losses from springing forward. Typically, bars stay open an hour later when we fall back. When we spring, I’ve never seen them close any earlier. WIN.

  • 6 What Do Economists Say About Daylight Savings Time? | Mind Your Decisions // Mar 9, 2015 at 11:30 pm

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