care Fight For People, Preferences, and Society 2 Parents everywhere are sometim
ID: 1157677 • Letter: C
Question
care Fight For People, Preferences, and Society 2 Parents everywhere are sometimes late in picking up their children at day care cen ters, thereby inconveniencing the staff. An experiment, carried out in Haifa, Israel, was designed to find a solution to the problem of tardy parents. At six randomly chosen centers a fine was imposed for lateness, and a few other centers were se- lected to serve as a "control group" (nothing was changed at these centers). Staff at the centers with the newly instituted fines expected that punctuality would improve. Contrary to these expectations, however, there was an increase in tardiness when the fines were imposed: the number of parents picking up their kids late more than doubled. Even more striking was the fact that when the fines were revoked, the par- ents' higher rate of tardiness persisted. Meanwhile, the amount of parental lateness at the centers in the control group did not change. The economists who designed the Haifa experiment were quite surprised by the results. Most economists assume that people seek monetary gain and try to avoid losses. From this perspective, the day care centers' fines should have given the par- ents an incentive to be more punctual. But the plan backfired. After analyzing the results, the designers of the experiment concluded that the imposition of the fines must have unintentionally suggested to the parents a new way of thinking about their behavior. Whereas before the experiment lateness had been seen as a violation of a moral obligation (to pick up the kids on time), after the imposition of the fines being late could be viewed as a choice between picking up the kids on time and paying a price (the fine) for being late. And under the new system many parents were appar- ently willing to pay the price. The designers of the experiment titled their report "A Fine Is a Price." Their main finding was that imposing the fines had signaled to the parents that they were now in a market-like relationship to the day care staff-one in which they could buy lateness. Once the fines had been introduced, revoking them could not restore the initial situation; it just lowered the "price of lateness" to zero. Why were the economists who designed the day care experiment surprised by its results? It was because they took it for granted, as have most economists until very Uri Gacezy and Alkdo Rustichini, "A Fine Is a Price," Journal of Legal Studies 29, no. 1 2000: 1-17 29Explanation / Answer
Solution:
a) Concepts of preference: Preference is defined as the ordering of available choice by the consumer based on the order of its utility for the consumer that results in optimal choice.
For example in the given case, the available choices are being late or be on time. If 40% time’s consumer comes on time and 60% time’s consumer preferred to be late. It means consumer is preferring to be late over being on time.
Concepts of beliefs: Belief is defined as the state or habit of mind of the consumer which is built on trust and confidence of the consumer in the given goods or services.
For example, in the given case, the parents have believe on the day care institutes that even if they come late to pick their children, the institutes will take care of their children. This belief is based upon their trust that is built up over the past experience of parents with the day care institutes when they come late to pick up their children.
Concept of constraints: Constraints are defined as the imposition of limitation by means of technology, resource scarcity, contractual obligations, laws, and regulations and fines on the consumer or society to maintain equality, law & order and the optimum use of the resources.
For example, in the given case, day care institutes has imposed two constraints on parents. First is to fine and other is to create control group for tardy parents.
b) Individual decision making is based on the BPC model. BPC stands for beliefs, preference and constraints. Preference gives consumer to select the alternatives based upon his like, taste and utility of the alternatives. Beliefs is the experience that a consumer built on the basis of past instances. These experience helps him to identify the pros and cons of the alternative. On the basis of these pros and cons consumer select his alternatives that results in optimal choice. Constraints are imposition of limitation. It limits the availability of alternatives to the consumer. When constraints are imposed, consumer try to maximise his utility on the basis of selecting optimal choice. This increases the effectiveness of the decision of the consumer.
c) Human behaviour: In economics, human behaviour is defined as the economic choices made by an individual on the basis of his preference, beliefs and prevailing constraints. This behaviour is greatly influenced by the environment in which a person is living. These environment is consist of social environment, physical environment, family environment, etc.
In the given case the parents are sending their children to the day care institutes but not coming on time to take their children’s. It means that people are working and have other more prevailing concerns that made them unable to come on time. Also may be in society there is a belief that if you come late to take your children, it means you have many more important things to do. Also imposition of fine increased the tardiness of parents. It shows that the marginal utility of paying fine is less than the marginal utility of coming late. On the other hand, It also gives them the availability of alternatives to take decision to maximise their utility. So, social norms are also affecting their decision.
If family environment of the parent is such that they also felt that their parents used to come late to take them. So, we should also go late to take our children. So, family environments also plays important roles in decision making.
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