Behavioral Economics: Decisions and Strategies

Catalog description

Behavioral economics is an emerging subfield that integrates insights from psychology into economic models of behavior. This MBA elective course is intended to inform managers analysts and consultants of the psychological processes and biases underlying our decision making with an emphasis on how to incorporate such insights into business strategies. Successful business strategies depend on a thorough understanding of how consumers and producers make decisions. However traditional models which are founded on the assumption of perfect rationality have serious limitations. Rather than making decisions in the manner predicted by these models consumers and producers often use myriad rules and processes that result in sometimes counterintuitive decisions. For instance consumers have an exaggerated tendency to select compromise or middle options when making choices overpay for warranties buy products they do not use and do not buy products that they later wish they had. Similarly producers overpay for acquisitions persist in investing in losing projects hire the wrong people and design products that result in consumer dissatisfaction. The fact many of these decision errors and biases are systematic has powerful business implications because as this course illustrates it is possible to address them. This course will provide a broad overview of important results from behavioral economics that clarify how consumers and producers really make decisions and investigate how these results can be leveraged to design original and more effective business strategies.