Behavioural and Experimental Economics

Course description

The course provides a theoretical and empirical introduction to basic concepts of modern behavioral economics. Topics covered demonstrate some attempts to integrate various systematic departures from the standard assumptions in economics into formal models. A new class of models inspired by new insights from neuroscience is also discussed.

Topics

Topic 1. Foundations of behavioral and experimental economics

• Basic concepts. The historical background. Behavioral economics vs. neoclassical economics. The methodology of experimental economics. Experimental vs. field data. The essence of experiments. Experiments in economics and psychology. Design options.

Topic 2. Irrational economic behavior: evidence discussion

• Predictably irrational individual. The concept of relativity in decision making. The fallacy of supply and demand. The effect of zero cost. Social and market norms. The problem of procrastination and self-control. Overvaluation of ownership. The influence of different options on personal main objective. The effect of expectations. The price power.

Topic 3. Decision-making under certainty

• Ignoring opportunity costs. The sunk-cost fallacy. Menu dependence and the decoy effect. Loss aversion and the endowment effect. WTA vs. WTP. Reference-point phenomena. Value function. Anchoring and adjustment.

Topic 4. Decision-making under risk and uncertainty

• Judgment under risk and uncertainty. The gambler's fallacy. Conjunction and disjunction fallacies. Base-rate neglect. Confirmation bias. Availability. Framing effects in decision-making under risk. Bundling and mental accounting. The Allais problem and the sure-thing principle. The Ellsberg problem and ambiguity aversion. Probability weighting. Tversky and Kahneman's prospect theory. Thaler's anomalies.

Literature

• Advances in Behavioral Economics / Eds. C. F. Camerer, G. Loewenstein, M. Rabin. Princeton University Press, 2004.
• Angner E. A Course in Behavioral Economics. New York: Palgrave Macmillan, 2012.
• Ariely D. Predictably Irrational. New York: Harper Collins, 2008.
• Bardsley N., Cubitt R., Loomes G., Moffatt P., Starmer C., Sugden R. Experimental Economics: Rethinking the Rules. Princeton University Press, 2009.
• Behavioral and Experimental Economics / Eds. S. N. Durlauf, L. E. Blume. New York: Palgrave Macmillan, 2010.
• Cartwright E. Behavioral Economics, 2nd ed. New York: Routledge, 2014.
• Dhami S. The Foundations of Behavioral Economic Analysis. Oxford University Press, 2016.
• Friedman D., Sunder S. Experimental Methods: A Primer for Economists. Cambridge University Press, 1994.
• Handbook of Experimental Economics Results / Eds. C. R. Plott, V. L. Smith. Elsevier, 2008.
• Kahneman D., Tversky. A. Prospect theory: An analysis of decision under risk. Econometrica, Vol. 47, No. 2 (Mar., 1979), pp. 263–292.
• Smith V. L. Bargaining and Market Behavior: Essays in Experimental Economics. Cambridge University Press, 2000.
• Thaler R. H. Misbehaving: The Making of Behavioral Economics. W. W. Norton & Company, 2016.
• Tversky A., Kahneman D. Advances in Prospect Theory: Cumulative Representation of Uncertainty. Journal of Risk and Uncertainty, Vol. 5, No. 4 (1992), pp. 297–323.