Syllabus - Behavioral Economics (CB802-(A))

Introduction

The neoclassical/standard model and behavioral economics in contrast; historical background; behavioral economics and other social sciences; theory and evidence in the social sciences and in behavioral economics; applications – gains and losses, money illusion, charitable donation.

Basics of choice theory

Revisiting the neoclassical model; utility in economics and psychology; models of rationality; connections with evolutionary biology and cognitive neuroscience; policy analysis – consumption and addiction, environmental protection, retail therapy; applications – pricing, valuation, public goods, choice anomalies

Beliefs, heuristics and biases

Revisiting rationality; causal aspects of irrationality; different kinds of biases and beliefs; self-evaluation and self-projection; inconsistent and biased beliefs; probability estimation; trading applications – trade in counterfeit goods, financial trading behavior, trade in memorabilia

Choice under uncertainty

Background and expected utility theory; prospect theory and other theories; reference points; loss aversion; marginal utility; decision and probability weighting; applications – ownership and trade, income and consumption, performance in sports.

Intertemporal choice

Geometric discounting; preferences over time; anomalies of inter-temporal decisions; hyperbolic discounting; instantaneous utility; alternative concepts – future projection, mental accounts, heterogeneous selves, procedural choice; policy analysis – mobile calls, credit cards, organization of government; applications – consumption and savings, clubs and membership, consumption planning

Strategic choice

Review of game theory and Nash equilibrium – strategies, information, equilibrium in pure and mixed strategies, iterated games, bargaining, signalling, learning; applications – competitive sports, bargaining and negotiation, monopoly and market entry. Individual preferences; Choice anomalies and inconsistencies; social preferences; altruism; fairness; reciprocity; trust; learning; communication; intention; demographic and cultural aspects; social norms; compliance and punishment; inequity aversion; policy analysis – norms and markets, labor markets, market clearing, public goods; applications – logic and knowledge, voluntary contribution, compensation design.