Munich Lectures for PhD students: An introduction to
Behavioral decision theory and behavioral time
discounting
Professor Sanjit Dhami
University of Leicester
Email: [email protected]
Prerequisites:
Prerequisites include being curious and open-minded about the subject. There are no
formal prerequisites beyond a good grounding in undergraduate maths and
microeconomics.
Those attending the course will benefit immensely if they come to the course having
read the following:
Introductory chapter in Sanjit Dhami (2016) Foundations of Behavioral Economic
Analysis, Oxford University Press, pp. 1-76.
At a minimum, you must have read Sections 1-4 (pages 1-25) and Appendix-B.
Purpose of the Lectures

To provide students with exposure to the evidence on behavior under risk,
uncertainty, and ambiguity; to evaluate the standard neoclassical model
(expected utility theory); and to provide an introduction to some of the
behavioral alternatives.

To provide students with exposure to the evidence on human choices with a time
dimension; to evaluate the standard neoclassical model (exponential discounted
utility); and to provide an introduction to some of the behavioral alternatives.
Intended Learning Outcomes
By the end of this module, a typical student should be able to:

Assess and discuss the empirical evidence from generic situations of risk and
uncertainty. Examine and analyse alternative behavioural decision theories of
risk and uncertainty such as prospect theory and rank dependent utility. To be
followed by a discussion of select applications of behavioural decision theories.

Discuss and analyse the evidence on alternative models of time preference. To
be followed by a discussion of alternative models of behavioural time
discounting such as the hyperbolic discounting model and select applications.
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Readings
The main textbook, that I follow closely, is:
Sanjit Dhami (2016) Foundations of Behavioral Economic Analysis. Oxford University
Press.
Here are some other books that you might find useful.
I. Background reading
1.
2.
3.
Daniel Kahneman (2011) Thinking, fast and slow. Allen-Lane
Richard Thaler (2015) Misbehaving: The making of behavioral economics.
Norton.
Edward O. Wilson (2012) The Social Conquest of Earth. Liverlight.
II. More advanced books
1.
2.
3.
Daniel Kahneman and Amos Tversky (2000) Choices, values and frames.
Cambridge University Press.
Herbert Gintis (2009) The bounds of reason: Game theory and the unification of
the social sciences. Princeton University Press.
Colin F. Camerer (2003) Behavioral game theory: Experiments in strategic
interaction. Princeton University Press.
III. Videos on You Tube
You can watch some of the videos made on the occasion of the book launch of your
main textbook on 4 November 2016. Here are the links:
https://www.youtube.com/watch?v=PqsV1dbOtpI (Sanjit Dhami)
https://www.youtube.com/watch?v=ncISNTVNmXc (Ernst Fehr)
https://www.youtube.com/watch?v=VwZuHpeLap8 (Herbert Gintis)
https://www.youtube.com/watch?v=2f5x955JfG8 (Andrew Schotter)
Here are a couple of videos by Richard Thaler on You Tube that introduce his book
“Misbehaving” that is referred to above:
https://www.youtube.com/watch?v=OZkT8neLY54 (Richard Thaler)
https://www.youtube.com/watch?v=Ox7_RQshIsc (Richard Thaler)
Here is a video by Daniel Kahneman on You Tube that introduces his book “Thinking
Slow and Fast” that is referred to above:
https://www.youtube.com/watch?v=qzJxAmJmj8w (Daniel Kahneman)
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Note: The word “Foundations” below refers to the main text that I am using (see above).
I and the relevant book sections will alert you to further readings that you might wish to
have a look at, depending on your interests.
Topic 1: Behavioral Decision Theory
Foundations: Expected utility theory (Sections 1.2, 1.3). Violations of the independence
axiom (Section 1.5.1, 1.5.2). Probability weighting functions (Section 2.2). Rank
dependent utility (2.3). Prospect theory (2.4). Limitations of prospect theory (2.9).
Human behavior for extreme probability events (Section 2.11). Prospect theory
preferences in primates (Section 3.3). Myopic loss aversion (Section 3.4). Why do people
pay taxes (Section 3.5). Moral hazard, loss aversion and optimal contracts (Section 3.11).
The Ellsberg paradox (Section 4.2). Behavioral models of ambiguity (Section 4.4).
Topic 2: Behavioral time discounting
Foundations: Exponential discounted utility model (EDU) and its properties (Section
9.3.1). Time consistency of consumption plans under EDU (Section 9.3.2). Anomalies of
the EDU model (Section 9.4). Quasi-hyperbolic model (pages 614-619). Multiple selves
and the degree of awareness (p. 650-51). Procrastination and preproperation (Section
11.5).
Final Note: I will be in Munich for most of the time between 2-31 May. You can freely
seek me out if you wish to discuss further, issues in behavioral economics.
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