Example: opportunity cost

1. Example: opportunity cost

In this chapter, we'll look at data from a study on opportunity cost from Frederick et al. The researchers investigated whether reminding students about saving money would make it less likely for them to spend money on a DVD video. The students were randomly assigned to a control or treatment group with different instructions.

2. The study

Seventy-five students were assigned to the control group and were presented with two options. Each student could either buy the video or not buy the video. Another 75 students were assigned to the treatment group and were given a slight variation on the same two options. The first option was also to buy the DVD, but the second option was to not buy the DVD while being reminded that the money could also be saved.

3. State the hypotheses

The null hypothesis is that the two sets of choices don't impact buying habits. The research, or alternative, hypothesis is that, in this setting, a reminder might make people more inclined to save.

4. The data

Of the 75 students assigned to the control group, 56, or about 75%, bought the DVD. Of the 75 students assigned to the treatment group, 41, or about 55%, bought the DVD. As before, you will use a null distribution to determine whether the difference of 20% could be attributed to random variability.

5. Let's practice!

OK, now it's your turn to practice what you've learned.

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