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Psychological Foundations of Economics

  • Teacher(s):   J.Buffat  
  • Course given in: English
  • ECTS Credits: 6 credits
  • Schedule: Spring Semester 2018-2019, 4.0h. course (weekly average)
  •  sessions
  • site web du cours course website
  • Related programmes:
    Bachelor of Science (BSc) in Economics

    Bachelor (BSc) in Economic Sciences

    Bachelor of Science (BSc) in Management

 

Objectives

This course offers a theoretical and empirical introduction to "behavioral economics". Behavioral economics enriches economics with insights from psychology. The aim of this approach is to generate new theories that provide a better description of human behavior than standard economic models.

The course introduces some of the most important theoretical and empirical developments in the literature on the psychological foundations of economic behavior. We will show that many common patterns of human behavior are in strong contrast to the predictions of standard economic theory. We will demonstrate that psychologically enriched models – taking into account that many people are not completely rational and self-interested – can explain these patterns much better.

Contents

There are four parts to the course. In each part we will discuss theory and evidence associated with a specific type of behavior which is not in line with the predictions of standard economic models.

Part I: Economics of Fairness

In the first part we will discuss the economic importance of social motives. There is a lot of evidence that many (but not all!) people are motivated by powerful non-pecuniary concerns like the desire to reciprocate or the desire to avoid social disapproval. We will see that this has important implications for the effects of economic incentives on behavior.

Part II: Time-Inconsistency

In the second part we will consider intertemporal decision problems, i.e., choices which affect two different points in time. We will study why people tend to make severe mistakes in this type of decisions and how this can lead to important economic and social problems like undersaving, overeating, and drug addictions.

Part III: Reference-Dependence and Loss Aversion

In the third part we will investigate the effects of reference-dependent preferences. There is a lot of evidence that people tend to evaluate economic outcomes relative to a reference point. If the reference point is not reached people are unhappy, because they experience the outcome as a loss. We will see that this has important implications for consumption patterns, investments and labor market decisions.

Part IV: Overconfidence

In the final part of the course we study the fact that many people consistently overestimate their abilities and/or performance in many domains. We will uncover possible roots for this phenomenon on the theoretical side and will also explore the consequences for decision making in a number of relevant dimensions.

References

All readings (journal articles, book chapters etc.) will be downloadable from the homepage.

Pre-requisites

-

Evaluation

First attempt

Exam:
Written 2 hours
Documentation:
Not allowed
Calculator:
Not allowed
Evaluation:

Your mark will be determined by two components: i) Exercises that you need to solve during the course, ii) A written exam at the end of the course (2 hours, no documentation, no calculator). The exercises will determine 25% of the mark, while the exam determines 75% of the mark. Details on assignments and the exam will be provided during the course.

Retake

Exam:
Written 2 hours
Documentation:
Not allowed
Calculator:
Not allowed
Evaluation:

For those who need to retake the exam, there will be a possibility during the official retake examination period (same conditions: 2 hours, closed-book and no calculator). In this case the mark is only determined by the exam.



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