Behavioural economics is one of the fastest growing branches of economics and relaxes many of the assumptions of traditional economic theory.
Syllabus and Course Overview
In this course, we will consider the traditional theories and models of economics and analyse how behavioural economics begins to move away from these models, by relaxing traditional assumptions. By doing this, behavioural economics looks to explain how agents actually behave in practice and what factors can sometimes explain seemingly irrational behaviour.
The course will expose students to several major topics in Behavioural Economics and will look to link theory with empirical applications. We will analyse the role of behavioural economics in the context of both consumer and firm behaviour. In particular, the course will focus on departures from neoclassical preferences and from rational expectations. Some of the topics that will be covered in this course include:
- Reference Dependent Preferences and Loss Aversion.
- Social Preferences.
- Hyperbolic Discounting.
- Naiveté and Self-Control.
- Happiness and Adaptation.
- The role of nudging and framing and the impact on consumer behaviour.
- Behavioural Welfare Analysis.
- Altruism and Cooperation.
- Herd Behaviour.
- Non-standard beliefs (including the gamblers' fallacy)
- Status and social comparison
- Individual Heterogeneity and Economic Implications
- Experiment Design in Practice
The aim of this course is to introduce students to the field of behavioural economics. The broad objective will be to insert more behavioural realism into economic theory and thus provide students with a better understanding of the important role that Behavioural Economics plays in explaining consumer and producer behaviour. By first ensuring an understanding of the traditional models of economics, the course will then aim to examine evidence that shows some departure from the assumptions made in the canonical economic model. We then aim to show how such departures can be formalized theoretically and how the resulting models find empirical confirmation.
By approaching behavioural economics in this way, the course aims to provide students with an understanding of the development of behavioural economics and how it builds on and then departs from traditional theory. It will consider examples such as the way in which firms can frame choices and nudge consumers to behave in a certain way. By drawing on empirical results and applying theoretical models to real-world examples, students will develop an understanding of the important lessons that this relatively new branch of economics can convey.
By the end of the course you should be able to:
- Demonstrate knowledge of some of the main theoretical and empirical debates in Behavioural Economics.
- Understand the way in which Behavioural economics has developed and how we can relate it to traditional models of economics.
- Assess the strengths and weaknesses of different theories of Economic Behaviour.
- Demonstrate an ability to apply the main concepts to a variety of other economic fields.
- Construct and substantiate arguments on a variety of topics covered in the module.
- Present clearly and methodically in their own words, but also using equations and diagrams.
For this course, there will be 4 hours of teaching per day, comprised of lectures and small group teaching. The structure will be:
- 3 hours of lectures.
- A 1 hour seminar in small groups.
Students will also be given time each day for independent study. Towards the end of the third week, students will also be provided with time for revision.
The module will be assessed via a 2-hour examination. It should be noted that the exam is not compulsory. Everyone who completes the course – whether or not they sit the exam - will receive a certificate of attendance. However, by taking the exam you will also receive a grade/mark for the course which can be helpful to you.
Below are some illustrative readings for this course.
- D. Kahneman and A. Tversky; “Choices, Values, and Frames”; (2000); Cambridge University Press: Cambridge.
- C. Camerer, G. Loewenstein and M. Rabin; “Advances in Behavioural Economics”; ed. Camerer, Loewenstein and Rabin; (2004).
- F. Shane, G. Loewenstein and T. O'Donoghue; “Time Discounting and Time Preference: A Critical Review”; Journal of Economic Literature; Jun., (2002), Vol. 40, No. 2. pp. 351-401
- A. Clark, E. P. Frijters and M. A. Shields “Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles”; Journal of Economic Literature; (2008), 46:1, 95–144
- D. G. Blanchflower and A. J. Oswald; “Well-Being over Time in Britain and the USA”; Journal of Public Economics; (2004) 88(7–8): 1359–86.
- E. Proto and A. Rustichini; "A reassessment of the Relation Between GDP and Life Satisfaction"; PLOS ONE; November, 2013.
- A. Oswald, E. Proto and D. Sgroi; “Happiness and Productivity”; Journal of Labour Economics; (2013); Forthcoming.
Materials will be updated here after each lecture.