Course home page and study guide for:
Behavioral Economics, 7,5 hp, VT
Course code: 730A15
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
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
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.
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 Perspectives, 11(4):167-188
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
Kahneman, D. (2003). "Maps of bounded rationality: Psychology for behavioral economics." American Economic Review 93(5): 1449-1475.
Emotions and decision making
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
Presence and active discussion at seminars, term-paper, and a take-home exam.
Last updated: 2014-04-23