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Regular version of the site

Behavioral and Experimental Economics

2019/2020
Academic Year
ENG
Instruction in English
5
ECTS credits
Course type:
Elective course
When:
4 year, 1, 2 module

Instructor

Course Syllabus

Abstract

Experimental economics is the branch of economics concerned with testing economic theory using controlled experiments. This methodology was introduced in the 1960s by Vernon Smith, who used it to study behavior in markets. Beginning in the 1970s, experimental methods were increasingly used by psychologists such as Kahneman and Tversky to point out behavior at odds with the standard economic model, and this work came to be known as behavioral economics. This course will teach you about behavioral and experimental economics through the lens of experiments on strategic behavior (game theory) and individual decision making (decision theory). The first half of this course will focus on game theory experiments. First, we will discuss “traditional” game theory experiments testing the validity of different equilibrium concepts, studying how well agents coordinate, and so on. Because to see how well game theory does in the lab, one first has to understand the theory, we will spend some time reviewing the theoretical fundamentals, such as rationalizability, Nash Equilibrum, subgame perfection, and so on. Second, we will see how game theory experiments can be used to shed light on preferences for altruism, trust, and other important drivers of human behavior which standard economic courses do not cover. The second half of this course will focus on experiments in decision theory. Here, we will learn about the classic work of Kahneman and Tversky as well as more recent developments. For instance, we will learn how non-standard data such as response times can be used to shed light on the decision-making process. This course is designed for students that are interested in economics as a science. Because the course requires a certain level of intellectual maturity, it is restricted to third and fourth year economics students. It is ideally suited for those who are considering obtaining an economics PhD. In most lectures, I will be presenting results of research papers. You should also be prepared to read and interpret economics research papers independently. . (If you are unsure whether this course is for you, try to read to this paper from the beginning to the end and see if you understand it: http://piotr-evdokimov.com/beliefs.pdf ) At a minimum, you should know how to interpret the results of a simple linear regression. You should also have completed courses in intermediate microeconomics, calculus, and statistics.
Learning Objectives

Learning Objectives

  • This course will teach students about behavioral and experimental economics through the lens of experiments on strategic behavior (game theory) and individual decision making (decision theory).
Expected Learning Outcomes

Expected Learning Outcomes

  • Has a good sense of where the field is today
  • Understands and critically evaluates the results of economic experiments
Course Contents

Course Contents

  • Introduction
    Why we need experiments, methodology, what makes economics experiments different from psychology
  • Levels of reasoning
    Topics: What does it mean to be rational? How game theorists model levels of reasoning (the way we think about others being rational) and what the data says (k-level thinking)
  • Nash Equilibrium
    Topics: How well Nash Equilibrium performs in the lab, coordination games, experiments on equilibrium selection
  • Prosocial behavior
    Topics: How game theory can be used to study prosocial behavior, with a focus on reciprocity (studied using the ultimatum game), altruism (studied using the dictator game), and trust (studied using the trust game)
  • Prospect Theory
    Topics: How risk-taking behavior in experiments deviates from the predictions of the standard model, prospect theory
  • Thinking Fast and Slow
    Topics: How non-choice data such as response times can be used to infer conclusions about the decision-making process, the promises and pitfalls of using non-choice data
  • Anomalies
    Topics: How processing of probabilistic information in experiments deviates from the Bayesian benchmark, the stability of behavioral anomalies and what they teach us about decision making
Assessment Elements

Assessment Elements

  • non-blocking Quizzes
  • non-blocking Midterm
  • non-blocking Participation in an experiment
  • non-blocking Home assignment
  • non-blocking Final test
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.35 * Final test + 0.2 * Home assignment + 0.3 * Midterm + 0.05 * Participation in an experiment + 0.1 * Quizzes
Bibliography

Bibliography

Recommended Core Bibliography

  • Alvin E. Roth, V. Prasnikar, M. Okuno-Fujiwara, & S. Zamir. (1998). Bargaining and market behavior in Jerusalem, Liubljana, Pittsburgh and Tokyo: an experimental study. Levine’s Working Paper Archive. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cla.levarc.344
  • Andrei Shleifer. (2012). Psychologists at the Gate: A Review of Daniel Kahneman’s Thinking, Fast and Slow. Journal of Economic Literature, (4), 1080. https://doi.org/10.1257/jel.50.4.1080
  • Daniel Kahneman, & Amos Tversky. (1979). Prospect theory: An analysis of decision under risk. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.8AB1AB05
  • Forsythe Robert, Horowitz Joel L., Savin N. E., & Sefton Martin. (1994). Fairness in Simple Bargaining Experiments. Games and Economic Behavior, (3), 347. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.gamebe.v6y1994i3p347.369
  • Hertwig, R., & Ortmann, A. (2012). Experimental practices in economics: A methodological challenge for psychologists? Germany, Europe. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.16E792A
  • James Andreoni, & John H Miller. (1997). Rational Cooperation in the finitely repeated prisoner’s dilemma: experimental evidence. Levine’s Working Paper Archive. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cla.levarc.670
  • Rabin, M. (2002). A Perspective on Psychology and Economics. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.5E7712BD

Recommended Additional Bibliography

  • Andreas Blume, & Andreas Ortmann. (2007). The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.C0E69B00
  • Hoffman Elizabeth, McCabe Kevin, Shachat Keith, & Smith Vernon. (1994). Preferences, Property Rights, and Anonymity in Bargaining Games. Games and Economic Behavior, (3), 346. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.gamebe.v7y1994i3p346.380
  • Todd L. Cherry, Peter Frykblom, & Jason F. Shogren. (2002). Hardnose the Dictator. Working Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.apl.wpaper.02.06