Economics 300.18
Behavioral Economics
Ohio Wesleyan University
Julide Yazar
219 – Corns Building (Phone: 368-3538)
[email protected]
Empirical evidence from the laboratory and the field suggests that human behavior
diverges often from standard notions of perfect rationality in predictable ways. This course
is focused on modeling the departures from perfect rationality, self-interest, and riskaversion assumptions of conventional economic theory. The course follows the
methodological style of neo-classical economics: Careful statement of axioms for human
decision processes, logical conclusions from those axioms and thoughtful empirical testing
of the assumptions and their logical conclusions.
The course includes a review of the experimental behavioral evidence from the literature
regarding human decision processes. We will focus on formal modeling of this evidence in
a way that can be used by economists and learn, how this new framework can improve
predictive power of economic theory in applications.
Text:
(ABE) A course in behavioral economics, Erik Angner, Palgrave Macmillan, 2012.
Selected Background Reading:
• The Winner’s Curse: Paradoxes and Anomalies of Economic Life, Richard Thaler,
Princeton University Press, 1992.
• Nudge: Improving Decisions About Health, Wealth, and Happiness, Richard H. Thaler,
2009.
Supplementary Reading will be assigned from:
• (ADV) Advances in Behavioral Economics (Camerer, Loewenstein, Rabin Eds).
Princeton Univ Press, 2003.
• (BGT) Behavioral Game Theory, Colin Camerer, Princeton University Press, 2003
• (CVF) Choices, Values, and Frames, Daniel Kahneman and Amos Tversky (eds.),
Cambridge University Press, 2000.
Prerequisites: ECON252, ECON251
Home Page: The course homepage is located at: .http://cc.owu.edu/~jjyazar/econ388/
Course Objectives
This course is an upper level course in economics requiring a solid foundation in
Microeconomic Theory and Research Methods. In this class, students will learn how
standard assumptions of economic theory could be relaxed to achieve greater physiological
realism. The models developed in this class will give students theoretical insight into
problems arising in economics and business and enable them to make better predictions and
policy suggestions. After this class, students should be able to design and run an
experiment in behavioral economics. Students will develop the ability to read academic
journal articles in behavioral economics and present methods and findings of these articles.
Grades:
Midterm 1
Midterm 2
6th week
12th week
30 points
30 points
Homework
4 homework assignments
20 points
Preliminary Research March 3
Proposal
Research Proposal March 27
10 points
20 points
Presentation
Weeks 12-15 (Sign up by March 17)
20 points
Final Research
April 28
20 points
Report
Quizzes
10 quizzes
10 points
TOTAL
160 points
The grade distribution will be based on your total score (M1+M2+PRP+P+FRP+Q) (within
each letter grade, + and – letter grades will be determined based on the class distribution)
Research Project
Throughout the semester the students will develop and conduct a research project.
Preliminary research proposal: Single page preliminary-proposal outlining the proposed
topic, planned experiment and anticipated results, please attach one related work (journal
paper) from the literature. I will send you questions and will provide feedback to your
written answers.
Research Proposal: The proposal should clearly state the specific topic that you are
focusing on and why it is important to advance our understanding (1-2 pages). Then it
should include a review relevant existing work and articulate how it will contribute to the
field. with full details of the proposed experiment with subject instructions. The research
proposal should outline the expected results of the experiment and provide adequate
reasoning for the specific design choices. Finally, the proposal should conclude with
anticipated results and statistical methods that will be used to analyze the data.
Final Research Report: The final report will include all the relevant material from the
research proposal and add experimental outcomes, data analysis, conclusions and directions
for future work.
Senior Seminar Presenstations: Presentations for the Senior Seminar Projects will be during
the final exam period. Attendance is required for all students.
Paper Presentation
You will prepare a 20 minute presentation, with and additional10 minutes for discussion
discussing the topic, experimental design, results, data analysis methods, and implications
for human economic behavior. You should submit me five multiple questions the class that
precedes your presentation. I will select four questions as a quiz for the students in
attendance. Your grade will be based on the presentation as well as the questions you
prepared.
COURSE STRUCTURE:
Week 1
1. Introduction to Behavioral Economics
- Neoclassical Economics v. Behavioral Economics v. Psychology
- Methods and Evidence
Reading:
Camerer and Loewenstein. Behavioral economics: Past, present and future. (Chapter 1 in
ADV).
Rabin, Matthew. "Psychology and economics." Journal of economic literature 36, no. 1
(1998): 11-46.
Rational Choice under Certainty (Chapter 2 in ABE)
Week 2
2. Choice under Certainty
- Review of Preferences and Choice
- Menu and Endowment effects
- Anchoring and Adjustment
Reading:
Decision Making under Certainty (Chapter 3 in ABE).
Kőszegi, Botond, and Matthew Rabin. "A model of reference-dependent preferences." The
Quarterly Journal of Economics (2006): 1133-1165.
Weeks 3-6
3. Decision Making under Uncertainty
- Review of Probability, Expected Utility and Bayes Rule
- Gambler’s, conjunction and Disjunction Fallacies
- Confirmation Bias
Reading:
Judgement under Risk and Uncertainty(Chapter 4-5 in ABE)
Choice under Risk and Uncertainty (Chapter 6-7 in ABE)
Developments in non-expected utility (Chapter 4 in ADV).
Weeks 7-8
4. Intertemporal Choice
- Review of Present Value and Discounting
- Hyperbolic Discounting, Preferences over Profiles
Reading:
Intertemporal Choice (Chapter 8-9 in ABE)
Frederick, Shane, George Loewenstein, and Ted O'donoghue. "Time discounting and time
preference: A critical review." Journal of economic literature, 351-401, 2002.
Angeletos, M “The Hyperbolic Consumption Model: Calibration, Simulation, and
Empirical Evaluation,” Journal of Economic Perspectives, August, 47-68, 2001.
Weeks 9-10
5. Behavioral Game Theory
- Review of Non-cooperative Game Theory, Nash Equilibrium in Pure and Mixed
Strategies
- Bounded rationality
- Social Preferences Altruism, Envy, Fairness and Justice
Reading:
Behavioral Game Theory (Chapter 10-11 in ADV)
Behavioral Game Theory (Chapter 13 in ADV).
Weeks 11
6. Neuroeconomics
-fMRI and Eye tracking Methods
- Models of Reasoning Process in Games
Reading:
Camerer, Loewenstein & Prelec, “Neuroeconomics: How neuroscience can inform
economics,” J Ec Perspectives, March 2005.
Sanfey, Alan G., George Loewenstein, Samuel M. McClure, and Jonathan D. Cohen,
"Neuroeconomics: cross-currents in research on decision-making." Trends in cognitive
sciences 10, no. 3, 108-116, 2006.
Glimcher, Paul W., Michael C. Dorris, and Hannah M. Bayer. "Physiological utility theory
and the neuroeconomics of choice." Games and economic behavior 52.2, 213-256, 2005.
Weeks 12-15
7. Applications to Pricing, Savings, Labor, Fashion and Behavioral Finance
A list of suggested papers for presentation will be provided