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Reevaluating the Rotten Kid Theorem: The impact of behavioral biases on family economic decisions

Author

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  • Sergio Da Silva

    (Federal University of Santa Catarina)

Abstract

This paper reevaluates the Rotten Kid theorem by incorporating cognitive biases into its framework. The purpose is to understand how cognitive biases affect economic decision-making within the family unit, particularly when the decisions involve trade-offs between individual preferences and family welfare. A behavioral economics simulation is designed, factoring in various cognitive biases that could influence a hypothetical scenario in which a wife decides whether to disconnect a nightlight used by her husband. We introduce a novel "online in silico experiment" to communicate the hybrid nature of our research, encompassing both computational simulations and the utilization of online AI tools. The simulation monitors the contributions of the husband and measures the utilities of wife and husband over time, executing 1000 iterations. The simulations show that the husband's contributions decrease on average, and biases within the family cause varying and unpredictable effects on utilities. This contradicts the Rotten Kid theorem's prediction, indicating that selfish individuals may not always act to increase the overall family welfare when cognitive biases are present. This paper makes a unique contribution by applying behavioral economics creatively to a traditional economic theorem, improving understanding of family dynamics by incorporating psychological factors into the model, thus challenging the theorem and broadening the scope of behavioral economics in family economics.

Suggested Citation

  • Sergio Da Silva, 2024. "Reevaluating the Rotten Kid Theorem: The impact of behavioral biases on family economic decisions," Economics Bulletin, AccessEcon, vol. 44(3), pages 865-879.
    • Handle: RePEc:ebl:ecbull:eb-23-00518
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Rotten Kid theorem; Night-Light example; Family economics; Behavioral economics; Cognitive biases; Online in silico experiment.;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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