Introduction to Concepts in Behavioral Economics and Decision Making 

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Contact:

behave@p2pu.org 

What is the course about?

Have you ever wondered if people are *really* rational? For the last hundred years economic theory has been built on the underlying assumption that people are rational. The field of behavioral economics and decision making both challenge this fundamental assumption by showing in a variety context, people's judgments are not rational. In this brief six week course, we will go through an overview of some of the main points in the field exploring things like prospect theory, the endowment effect, hyperbolic discounting, priming, moral decision making, among a variety of other topics.

People involved:

This course is being organized by Neeru Paharia. Neeru is a fifth year doctoral student studying consumer behavior at Harvard Business School.

Is this right for me? (Prerequisites):

You should have a basic understanding of economics, but overall if you are intellectually curious this might be a good class for you. During the first run of the class enrollment will be limited to 15 students. If you wish to enroll please refer to the sign-up page.

Learning outcomes:

My goal is for you to have a more nuanced understanding of how you make decisions, and the ways in which we are all systematically irrational.

Expectations

You should plan to invest 4-6 hours per week on this course. If the materials are very interesting to you and you want to learn more you may consult with the course organizer for extra assignments.

Class Meetings

We will meet a specified time for 1-1.5 hours at some point during the week to discuss the materials. Depending on people's location and facilities we may do conference call, or IM. Depending on time zones we may schedule one or two meetings. Once enrollment has been confirmed, we will schedule course meetings.

Grading

You will be graded 50% on your participation, and 50% on your assignments.

Schedule

CLASS 1 Overview:

Behavioral economics is a field that has been developed in reaction to standard economics. Standard economic theory is based on the assumption of the rational economic actor. I want to you have some background in these assumptions so would like you to read the following:

Read this wikipedia entry on Rational Choice Theory: http://en.wikipedia.org/wiki/Rational_Choice_Theory

Read this wikipedia entry on homo economicus: http://en.wikipedia.org/wiki/Homo_economicus

Read this article goodbye homo economicus: http://economistsview.typepad.com/economistsview/2009/03/goodbye-homo-economicus.html

Now I want to introduce you into some of the concepts from behavioral economics. These videos are meant to provide a user-friendly overview of the field. 

Listen to Dan Ariely’s Introduction on Behavioral Economics:

 http://www.youtube.com/watch?v=Fa-mIosWOK8

 Listen to Richard Thaler’s Talk. Dick Thaler is one of the founders of the field:

http://www.youtube.com/watch?v=Dz9K25ECIpU&feature=PlayList&p=F9F2190B047A6215&playnext=1&playnext_from=PL&index=1

Assignment:

Please answer these three questions. You answer should be 1-2 pages. Please post your responses to the course blog. People from your learning team will read and comment on your responsse.

1. Think about times in which you've made decisions: what school to attend, what job to take, what kind of car to buy, what to eat for dinner, who to spend your time with, who to date, etc. Now think about how you made those decisions. Do you rely on your gut/intuition or are you more likely to consciously and systematically weight the costs and benefits of your choices? Do different decisions warrant different decision-making styles? Which style of decision-making seems to yield the best results for you? Are you more of an econ or human in general?

2. Can you think about ways in which default choices have influenced you? Can you think of a way to change a default option that you might encounter in the world (401k plans, etc.) to yield better outcomes? Can you think of a way having more feedback can help you (or others) make better decisions?

3. Think about the current economic crisis. Do you think all the people involved in creating this situation (bankers, lenders, home buyers, etc.) were making "rational" decisions? That is, were they accurately weighing the costs and benefits of their decisions at every point?

Meeting: Depending on what kind of technical resources we can get to work, we will meet a specified time for 1-1.5 hours at some point during the week to discuss the materials.

Post your assignments to the blog by 9/19.

CLASS 2 Overview:

CLASS 3 Overview:

 Overview of major effects in behavioral economics and decision-making.  

An overview of important topics in behavioral economics, decision making, and consumer behavior has been posted to slideshare. This is a narrated talk designed to give you a broader understanding of the field. Please watch the talk and keep in mind any topics that are of particular interest to you.

 Read Prospect Theory: An Analysis of Decision Under Risk (section 22 in this file)

http://uwch-4.humanities.washington.edu/Texts/Philosophy%20Guides,%20Analysis%27%20and%20Resources%20(ver.2)/Preference,%20Belief,%20and%20Similarity%20Selected%20Writings%20(Bradford%20Books).pdf#page=566

Assignment: Please email the course organizer which topic from the slideshare talk was most interesting to you. The organizer will email you a paper to read and summarize for a future assignment. Please write a one page summary of the Prospect Theory paper.

Meeting: We will meet a specified time for 1-1.5 hours at some point during the week to discuss the materials.

CLASS 4 Overview:

Read Anomalies, The Endowment Effect, Loss Aversion, and Status Quo Bias:

ftp://162.105.169.100/dingding/topic%20papers/The%20Endowment%20Effect,%20Loss%20Aversion,%20and%20Status%20Quo%20Bias.pdf

Personally Assigned Paper:

The tutor will have emailed you a paper in the area that you indicated you were interested in class three. Your assignment is to write a one-page summary of the paper and post it to acawiki.org. Tag the summaries Behavior Economics 09 so we can find them.

Meeting: We will meet a specified time for 1-1.5 hours at some point during the week to discuss the materials. 

CLASS 5 Overview:           

Assignment: Read the summaries of all of your classmates that were posted to acawiki.org by searching on the tag Behavioral Economics 09. Please make comments on at least 3 of your favorite summaries.

Meeting: We will meet a specified time for 1-1.5 hours at some point during the week to discuss the materials. 

CLASS 6 Overview: 

Watch this video on behavioral finance: http://academicearth.org/lectures/behavioral-finance

We'll probably do another round of paper summaries depending how class 5 goes, or determine what we do as the class evolves.