Behavioral Economics

Catalog description

This course draws on insights from other academic disciplines, particularly psychology, in an attempt to develop better explanations for economic behavior. In particular, the course explores three features of behavior that are de-emphasized in neoclassical economics: bounded rationality, bounded willpower, and bounded self-interest (social preferences). Bounded rationality implies that individuals have limited information-processing capabilities and, as a result, rely on simple heuristics ("rules of thumb") to make decisions. While useful, heuristics can lead to biased probability judgments, overconfidence, status quo bias, loss aversion, and other behaviors that influence economic outcomes. People exhibit bounded willpower when they make decisions that are dynamically inconsistent and in conflict with their long-term well-being (e.g., procrastination, under-saving, addiction, etc.). A focus on social preferences asks us to consider how concerns about fairness might influence labor market outcomes and trust affects the gains from trade and economic growth. By developing models based on realistic assumptions about human behavior, behavioral economists hope to design better institutions and policies to reduce poverty, limit environmental degradation, promote financial and macroeconomic stability, and solve other problems confronting the world. Prerequisite: ECO 110 , ECO 120 . Offered Fall.