Becker Irrational Behavior

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WHAT IS IT?

The model is an illustration of Becker's (1962) argument that even if agent's are irrational, market demand curves slope downward.

HOW IT WORKS

The world represents the cartesian plane where each point is a possible consumption bundle of good x (x axis) or good y (y axis). The coordinates of each agent are its consumption bundle. Assuming all agents have the same income, the agent's budget possibilities for a given level of income is represented by patches in white. The price of good y is set to one. Initially the price of x is set to one and is increased by 0.5 each time step. Agents randomly choose a consumption bundle each time the budget set is updated to reflect the increase in the price of x. Income can be changed from each time step to each time step. The total quantity of x consumed by all agents and the price are plotted to obtain the market demand.

HOW TO USE IT

Press go-once to incrase the price of x by 0.5. Press go to increase the price in steps of 0.5 until its maximum value of 10 is reached.

THINGS TO NOTICE

Demand curves slope downward dammit!

THINGS TO TRY

Starting at a relatively low level of income, between each time step, increase the level of income to see if you can get an "upward sloping demand curve". Of course it is not really an upward sloping demand curve, it is an illusion obtained by increasing the level of income and hence expanding consumption possibilities of y.

EXTENDING THE MODEL

In Becker's original formulation, irrationality is modeled as a linear combination of two consumption strategies, habit (consume the same amount, if available) and impulse (find a random consumption bundle within the possibilities set). Try incorporating these two strategies to see if the results (downward sloping demand curves) change. In addition, he assumes that random impulse choices are distributed uniformly across possible consumption bundles. You could change the model such that the probability of consuming more x varies in proportion to the price of x subject to the posibilities set to see if the results vary.

CREDITS AND REFERENCES

Becker, Gary S. "Irrational behavior and economic theory." The Journal of Political Economy (1962): 1-13.

Author: Santiago Gangotena

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;;#########################################
;;
;; Author: Santiago Gangotena
;; Date Created: 19/2/2016
;;
;;#########################################

globals
[
  price-of-x 
]

;;##############
;;   SET-UP
;;##############

to set-up
  clear-all
  set price-of-x 1
  set-up-patches
  set-up-turtles
  reset-ticks
end 

to set-up-patches
  patches-step
end 

to set-up-turtles
  create-turtles num-of-people
  ask turtles
  [
    set shape "person"
    choose-random-consumption
  ]
end 

;;##############
;;      GO
;;##############

to go-once
  update-price
  patches-step
  turtles-step 
  tick
end 

to go
  update-price
  patches-step
  turtles-step
  tick
end 

to turtles-step
  ask turtles
  [
    choose-random-consumption 
  ]
end 

to patches-step
  ask patches
  [
    update-possibilities-set
  ]
end 

to update-possibilities-set
  ifelse (pycor <= round (income - ( price-of-x * pxcor )))
  [
    set pcolor white 
  ]
  [
    set pcolor black 
  ]
end 

to choose-random-consumption
  let new-patch one-of patches with [ pcolor = white ]
  move-to new-patch 
end 

to update-price
  if (price-of-x < 10 )
  [
    set price-of-x ( price-of-x + (1 / 2))
  ]
end

There is only one version of this model, created over 9 years ago by Santiago Gangotena.

Attached files

File	Type	Description	Last updated
Becker Irrational Behavior.png	preview	Preview for 'Becker Irrational Behavior'	over 9 years ago, by Santiago Gangotena	Download

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