Application Exercise 5b: Decisions, decisions…
- Jose’s preferred decision can be seen as short-sighted as he is ignoring the potential future benefits in terms of the significant savings on electricity bills from installing solar panels.
- Aisha’s preferred decision is one that has been made with an eye to the future and the significant savings on electricity bills that can be made from the installation of solar panels. Although there is a large initial cost, Aisha recognises that in time the solar panels will pay for themselves as the energy generated by the Sun is essentially free of charge.
- This case study demonstrates the decision-making bias known as ‘present bias’, where consumers can tend to over value the present and under value the future i.e. ‘future discounting’. Jose’s preferred decision demonstrates present bias as he is under valuing or ‘discounting’ the big savings they will enjoy in the future from installing solar panels.