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Course home page and study guide for:

Behavioral Economics, 7,5 hp, VT

Course code: 730A15

Course Director/Examiner/Teacher:


Gustav Tinghög
mobile: 0733-223091


Kinga Posadzy
mobile: 0732703469


Course period:

140331-140605 (halvfart)

What is behavioral economics? How is it different from standard economics?

In general, both standard and behavioral economics are interested in the same questions and topics.  The choices people make, the effects on incentives, the role of information etc. However, unlike standard economics, behavioral economics does not assume that people are rational. From a behavioral economics perspective people are fallible rather than rational. In fact we believe people are easily confused, often too gullible or too suspicious and simply not always that smart. We are more like Homer Simpson than Modesty Blaise. But hey, at the same time it means that there actually are truly free lunches!

In behavioral economics we start by figuring out how people actually behave, often in a controlled lab environment in which we can understand behavior better, and use this as a starting point for building our understanding of human nature. As a consequence of this different starting point, behavioral economists usually come to different conclusions about the logic and efficiency of almost anything, ranging from mortgages to savings to healthcare in both the personal and business realms.

By the end of the course students should

  • have an overview of major papers in the literature and appreciate differences between neoclassical and behavioral methods
  • be able to apply the basic frameworks to economic problems
  • recognize some of the key debates in thinking about how behavioral economics can inform public policy

Course outline:

The course is divided into eight topics:

Topic 1: Behavioral economics, foundation and methods
Topic 2: Fairness and Social Preferences
Topic 3: Time preferences (self control problems/choice over time)
Topic 4: Risk Preferences (prospect theory/loss aversion)
Topic 5: Emotions and decision making
Topic 6: Behavioral game theory

Topic 7: Mental accounting



Main book
An Introduction to Behavioral Economics by Nick Wilkinson

Nudge: Improving Decisions About Health, Wealth and Happiness by Richard Thaler and Cass Sunstein

Articles (see collapsed course).



Fairness and Social Preferences

Henrich, J., R. Boyd, et al. (2001). "In search of Homo economicus: Behavioral experiments in 15 small-scale societies." American Economic Review 91(2): 73-78.

Mellström, C. and M. Johannesson (2008). "Crowding out in blood donation: was Titmuss right?" Journal of the European Economic Association 6: 845-863.

Jacobsson F, Johannesson M, Borgquist L. (2007) Is altruism paternalistic? Economic Journal  vol. 117:761-781.

             Gneezy U, Rustichini A. (2000) A fine is a price. Journal of Legal Studies vol. 29:1-17.


            Time Preferences

Frederick, K. (2003). "Measuring intergenerational time preferences: Are future lives valued less?" Journal of Risk and Uncertainty26(1): 39-53.

O’Donoghue, T. and M. Rabin (1999). "Doing it now or doing it later." American Economic Review 89(1): 103-124.

Ariely, D. and Wertenbroch, K.(2002) “Procrastination, Deadlines, and Performance: Self-Control by Precommitment,” Psychological Science, 13: 219-224;

Tinghog, G. (2011). "Discounting, Preferences, and Paternalism in Cost-Effectiveness Analysis." Health Care Anal. 20(3):297-318


Behavioral Game theory

Camerer, C.: "Behavioral Game Theory", Chapter 1, Introduction; Appendix 1.1, Basic Game Theory

          see the link: http://dss.ucsd.edu/~vcrawfor/Camerer_Ch1intro.pdf

            Camerer, C. (1997): "Progress in Behavioral Game Theory", The Journal of Economic Perspectives11(4):167-188


Risk Preferences

Camerer, C. (1998): "Prospect Theory in the Wild: Evidence From the Field:, Working Papers 1037, California Institute of Technology, Division of Humanities and Social Sciences; see the link: http://www.uibk.ac.at/economics/bbl/lit_se/lit_se_ss06_papiere/camerer_(1998).pdf


 Emotions and decision making

 Added later


Mental Accounting

            Thaler, R. H. (1999): "Mental Accounting Matters" Journal of Behavioral Decision Making, 12, pp. 183-206,

Odean, T. (1998). "Are investors reluctant to realize their losses?" Journal of Finance 53(5): 1775-1798.


            Applications of behavioral economics 

            Added later




Presence and active discussion at seminars, term-paper, and a take-home exam.

Page responsible: christina.svensson@liu.se
Last updated: 2014-04-16