- Behavioral Economics

Catalog description

This course surveys recent developments in the field of behavioral economics, which introduces insights from psychology into economic modeling, and explores features of human behavior which are largely ignored in the neoclassical economic model of decision making: bounded rationality, self-interest, and willpower. Bounded rationality implies that individuals have limited ability to process information and simplify decisions by using simple rules of thumb known as heuristics. The use of heuristics can lead to overconfidence, loss aversion, the endowment effect, status quo bias, and other behaviors that influence economic outcomes. Bounded self-interest implies that individual preferences have a social dimension such that concerns about fairness influence labor market outcomes and concerns about trust affects the gains from trade. People exhibit bounded willpower when they make short-term decisions that are inconsistent with their long-term goals and well-being. Examples of bounded willpower include procrastination, drug and alcohol abuse, failure to eat right and exercise, etc. Behavioral economics aims to design better public policy to limit environmental degradation, to reduce poverty, promote macroeconomic stability, and to create more realistic models of human behavior. Behavioral economists typically test theories of behavior by conducting experiments in the laboratory or in the field. This course introduces students to experimental methods used by behavioral economists and requires students to design a unique experiment using these methods.