Behavioral Economics

Course Objective: 

 

This course will provide students with a clear introduction to the principles and methods of Behavioural

Economics. Behavioural economics considers the ways that people are more social, more impulsive, less adept

at using information, and more susceptible to psychological biases than the standard economic models assume.

Course Outcomes:  The students will be able to

1

Understand the flexibility and limitations of the economic approach to modelling behaviour.

2

Know how to use existing behavioural models to understand new economic phenomena.

3

Know to design experiments to evaluate a proposed behavioural model.

4

Know to evaluate research in Economics and disciplines related to behavioural research

5

Be able to pose a novel research question, design plan to investigate it and conjecture how to answer it.

Course Content:  

 UNIT I

Introduction: What is behavioural economics?

Introduction to the themes and methods of behavioural economics. Anticipation and information avoidance as introductory example. Making Choices Under Risk: Prospect Theory How do people really make choices when faced with uncertainty?

10 hrs

 UNIT II

The role of reference-dependent preferences in both risky (loss-aversion) and risk-free (the endowment effect) choices.

10 hrs

 UNIT III

Social Preferences I

How do people care about those around them? Both distributional social preferences (altruism, inequality aversion)

10 hrs

 UNIT IV

Social Preferences II

Intentions-based social preferences (reciprocity, fairness). The possibility of self-deception.

10 hrs

 UNIT V

Heuristics and Biases

How do people make predictions about the world around them? The heuristics and biases displayed in judgment and decision-making.

10 hrs

UNIT VI

Nudges, Policy, and Happiness

How and when should governments intervene if people are “behavioural”? The theory of nudges, and happiness as an outcome

10 hrs

Internal Assessment: 

 CIA 1

Unit I, Unit II 

 

 CIA 2

Assignment submission and/or presentation 

 

Text Books: 

1.       An Introduction to Behavioral Economics, N. Wilkinson and M. Klaes (2012), Palgrave Macmillan

2.       Animal Spirits, G. Akerlof and R. Shiller (2009), Princeton University Press.

 References: 

3.       Loewenstein (1987) “Anticipation and the Valuation of Delayed Consumption”. Economic Journal, 97(387): 666— 684

4.       Kahneman and Tversky (1979) “Prospect Theory: An Analysis of Decision Under Risk”, Econometrica, 47(2): 263–

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