Behavioural Economics

Course

URL study guide

https://studiegids.vu.nl/en/courses/2024-2025/W_JSM_217

Course Objective

At the end of the course the student is able to:
- demonstrate knowledge how axiomatic choice models in economics can be empirically tested, what the (replicated and robust) evidence-based facts about actual choice in economics are.
- demonstrate being able to perform “micro-economic analyses” of quantitative behavioral economic models.
- set-up and conduct elementary classic experiments and reflect upon their experimental setup and critically questions the obtained empirical evidence.
- adopt a critical evidence-based attitude towards economics, both positive and normative, and to reflect upon effective behavioral economic policies and policy debates.
- demonstrate awareness of own personal behavioral biases and of other persons.

Course Content

Behavioral economics is reshaping economics. Many experiments demonstrate that people behave differently than predicted by the standard rational-choice model of homo economics in textbooks. These empirical findings result from systematic biases with a physiological origin related to psychological process in the human brain. Behavioral economics recognizes this origin and explores its consequences to arrive at evidence-based economics as a positive science and evidence-based economic policy as its normative counterpart. Behavioral economics therefore has serious consequences for economic policy itself and thinking about economic policy. For instance, making automatic enrollment in pension savings the default choice option substantially increases the number of participants in US pension saving schemes. This tinkering with what is called the choice architecture is called nudging and has led for instance to the foundation of the Behavioral Insights Team (BIT), a social company that started as the world’s first government institution dedicated to the application of behavioral sciences. Cass Sunstein and Nobel-laureate 2017 Richard Thaler have advocated these policies and labelled them libertarian paternalism and view it as an alternative to laissez-faire. In this course a selection of established behavioral economic topics will be introduced: preference reversal, loss aversion, framing, sunk cost fallacy, endowment effect, judgement of risk, gambler’s fallacy, hot-hand fallacy, Allais’ paradox, Prospect Theory, satisficing, menu dependence, mental accounting, other-regarding preferences, reciprocity, trust, limited strategic thinking, quantal response equilibrium and welfare analysis.

Teaching Methods

Lectures, seminars, and online experiments in which theory, exercises, policy implications, and your class’ experimental data are critically discussed.

Method of Assessment

Participation in experiments and a personal reflection on personal biases (10%), a mid-term assignment (35% final grade) and a final-term assignment (55% final grade) that include performing and reporting on several classic experiments, a problem set related to seminar exercises and written assignment. Seminar attendance (pass/fail) in accordance to PPE policies.

Literature

Sanjit Dhami (2016) The Foundations of Behavioral Economic Analysis, Oxford University Press. ISBN: 9780198715535 Selected texts, scientific articles and supporting YouTube videos. Textbook, articles and videos are available for free via the ubvu.vu.nl

Target Audience

Second year PPE students

Recommended background knowledge

Mandatory courses PPE specialization Track 3: Economics

Explanation Canvas

Please note that participation in the seminars is mandatory
Academic year1/09/2431/08/25
Course level6.00 EC

Language of Tuition

  • English

Study type

  • Bachelor