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Regular version of the site
Postgraduate course 2019/2020

Behavioral Economics

Type: Elective course
Area of studies: Economics
When: 2 year, 1 semester
Mode of studies: Full time
Instructors: Anton Suvorov
Language: English
ECTS credits: 4

Course Syllabus

Abstract

The neoclassical paradigm, dealing with rational economic agents who have stable preferences and always make optimal decisions, is a dominant approach in mainstream economics. ''Behavioral Economics'' (or ''Psychology and Economics'') is a new field, not an easy one to define. What unifies the different research programs associated with it is an attempt to bring psychological realism to economic analysis. Some papers document systematic departures of the actual human behavior from the one predicted by mainstream economic models. Others incorporate more realistic, psychologically grounded assumptions into economic models to investigate their implications. Yet others are interested in explaining seemingly irrational behavior using tools of economics and game theory with some minor departures from conventional assumptions. The course is somewhat eclectic. We shall both discuss theoretical models and look at many empirical (mostly, experimental) results. There is no textbook, all references will be to recent papers published in the leading international journals or yet unpublished.
Learning Objectives

Learning Objectives

  • Learning the main ideas, models, methods and results in behavioral and experimental economics. Understanding the main concepts of behavioral and experimental economics and learning how to apply models and techniques in fundamental and applied research and policy design.
Expected Learning Outcomes

Expected Learning Outcomes

  • The student understands and is able to apply the basic concepts of behavioral economics, including reference-dependent utility, quasi-hyperbolic discounting, social preferences, motivated beliefs, intrinsic motivation.
  • The student knows the main principles of experimental economics and knows how to apply them when designing own experiments; knows how to evaluate experimental research in economics.
Course Contents

Course Contents

  • Introduction to Behavioral Economics
  • Prospect Theory
    Reference-dependent utility, loss aversion; framing effects. Endowment effect. Endogenous reference standards.
  • Attitude to information
    Beliefs as an argument of utility functions. Heuristics and biases.
  • Social preferences
    Fairness, reciprocity, social signaling.
  • Intertemporal choice
    Self-control. Imperfect memory. Overconfidence.
  • Psychological aspects
    Incentives, motivation.
  • Some applications
    Miscellaneous topics.
Assessment Elements

Assessment Elements

  • blocking Essay
  • non-blocking Presentation of the essay
  • non-blocking Final test
    The final test has the written, closed-book format; it’s duration is 2 hours.
Interim Assessment

Interim Assessment

  • Interim assessment (1 semester)
    0.25 * Essay + 0.5 * Final test + 0.25 * Presentation of the essay
Bibliography

Bibliography

Recommended Core Bibliography

  • Akerlof, G. A., & Dickens, W. T. (1982). The Economic Consequences of Cognitive Dissonance. American Economic Review, (3), 307. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.aea.aecrev.v72y1982i3p307.19
  • Ariely, D., Loewenstein, G., & Prelec, D. (2003). “Coherent Arbitrariness”: Stable Demand Curves without Stable Preferences. Quarterly Journal of Economics, 118(1), 73. https://doi.org/10.1162/00335530360535153
  • Bernheim, B. D. (1994). A Theory of Conformity. Journal of Political Economy, (5), 841. https://doi.org/10.1086/261957
  • Botond Köszegi. (2006). Ego Utility, Overconfidence, and Task Choice. Journal of the European Economic Association, (4), 673. https://doi.org/10.1111/(ISSN)1542-4774/issues
  • Camerer, C., Babcock, L., Loewenstein, G., & Thaler, R. (1997). Labor Supply of New York City Cabdrivers: One Day at a Time. Quarterly Journal of Economics, 112(2), 407–441. https://doi.org/10.1162/003355397555244
  • Charles R. Plott, & Kathryn Zeiler. (2005). The Willingness to Pay–Willingness to Accept Gap, the “Endowment Effect,” Subject Misconceptions, and Experimental Procedures for Eliciting Valuations. American Economic Review, (3), 530. https://doi.org/10.1257/0002828054201387
  • Ernst Fehr, & Klaus M. Schmidt. (2003). Theories of Fairness and Reciprocity —— Evidence and Economic Applications. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.76A52869
  • Fehr, E., & Falk, A. (2002). Psychological foundations of incentives. European Economic Review, (4–5), 687. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.eecrev.v46y2002i4.5p687.724
  • Henry S. Farber. (2005). Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers. Journal of Political Economy, (1), 46. https://doi.org/10.1086/426040
  • Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, (2), 263. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.ecm.emetrp.v47y1979i2p263.91
  • Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of Political Economy, (6), 1325. https://doi.org/10.1086/261737
  • Koszegi, B., KÖSzegi, B., & Rabin, M. (2006). A Model of Reference-Dependent Preferences. Quarterly Journal of Economics, 121(4), 1133–1165. https://doi.org/10.1093/qje/121.4.1133
  • Laibson, D. (1997). Golden Eggs and Hyperbolic Discounting. Quarterly Journal of Economics, 112(2), 443–477. https://doi.org/10.1162/003355397555253
  • Matthew Rabin, & Ted O’Donoghue. (1999). Doing It Now or Later. American Economic Review, (1), 103. https://doi.org/10.1257/aer.89.1.103
  • Richard H. Thaler, & Shlomo Benartzi. (2004). Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving. Journal of Political Economy, (S1), 164. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.ucp.jpolec.v112y2004is1ps164.s187
  • Roland Bénabou, & Jean Tirole. (2003). Intrinsic and Extrinsic Motivation. Review of Economic Studies, (3), 489. https://doi.org/10.1111/1467-937X.00253
  • Sendhil Mullainathan, & Andrei Shleifer. (2005). The Market for News. American Economic Review, (4), 1031. https://doi.org/10.1257/0002828054825619
  • Shane Frederick. (2005). Cognitive Reflection and Decision Making. Journal of Economic Perspectives, (4), 25. https://doi.org/10.1257/089533005775196732
  • Tirole, J. (2002). Rational irrationality: Some economics of self-management. European Economic Review, (4–5), 633. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.eecrev.v46y2002i4.5p633.655

Recommended Additional Bibliography

  • Armin Falk, & Markus Knell. (2004). Choosing the Joneses: Endogenous Goals and Reference Standards. Scandinavian Journal of Economics, (3), 417. https://doi.org/10.1111/j.0347-0520.2004.00370.x
  • Bruno Biais, Denis Hilton, Karine Mazurier, & Sébastien Pouget. (2005). Judgemental Overconfidence, Self-Monitoring, and Trading Performance in an Experimental Financial Market. Review of Economic Studies, (2), 287. https://doi.org/10.1111/j.1467-937X.2005.00333.x
  • Camerer, C., Loewenstein, G., & Rabin, M. (2004). Advances in Behavioral Economics. New York: Princeton University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=329745
  • Charness, G., & Rabin, M. (2002). Understanding Social Preferences with Simple Tests. Quarterly Journal of Economics, 117(3), 817–869. https://doi.org/10.1162/003355302760193904
  • David Hirshleifer, & Ivo Welch. (2002). An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness. Journal of Economics & Management Strategy, (3), 379. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.bla.jemstr.v11y2002i3p379.421
  • David K. Levine, & Drew Fudenberg. (2006). A Dual-Self Model of Impulse Control. American Economic Review, (5), 1449. https://doi.org/10.1257/aer.96.5.1449
  • Eliaz, K., & Spiegler, R. (2006). Can anticipatory feelings explain anomalous choices of information sources? Games and Economic Behavior, (1), 87. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.gamebe.v56y2006i1p87.104
  • Gneezy, U., & Rustichini, A. (2000). A Fine is a Price. The Journal of Legal Studies, (1), 1. https://doi.org/10.1086/468061
  • Isabelle Brocas, & Juan D. Carrillo. (2005). Biases in Perceptions, Beliefs and Behavior. Levine’s Bibliography. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cla.levrem.172782000000000063
  • Jason Dana, Roberto Weber, & Jason Kuang. (2007). Exploiting moral wiggle room: experiments demonstrating an illusory preference for fairness. Economic Theory, (1), 67. https://doi.org/10.1007/s00199-006-0153-z
  • Kahneman, D., Knetsch, J. L., & Thaler, R. (1986). Fairness as a Constraint on Profit Seeking: Entitlements in the Market. American Economic Review, (4), 728. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.aea.aecrev.v76y1986i4p728.41
  • List, J. A. (2003). Does Market Experience Eliminate Market Anomalies? Quarterly Journal of Economics, 118(1), 41. https://doi.org/10.1162/00335530360535144
  • Lorenz Goette, David Huffman, & Ernst Fehr. (2004). Loss Aversion and Labor Supply. Journal of the European Economic Association, (2–3), 216. https://doi.org/10.1111/(ISSN)1542-4774/issues
  • Rabin, M. (2002). A perspective on psychology and economics. European Economic Review, (4–5), 657. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.eecrev.v46y2002i4.5p657.685
  • Thaler, R. H. (1999). Mental Accounting Matters. Journal of Behavioral Decision Making, 12(3), 183–206. https://doi.org/10.1002/(SICI)1099-0771(199909)12:3<183::AID-BDM318>3.0.CO;2-F