ØASØK4400 Behavioral Economics Emneplan

Behavioral economics uses empirical insights from psychology and other fields (such as sociology or neuroscience) in economic analysis. Conventionally, economics assumes that people are "economically rational": they make logically consistent choices in their best self-interest. Of course, sometimes people don't behave that way. Behavioral economics broadens the reach of economic analysis to situations in which people unselfishly contribute to the common good (like giving to the Red Cross), regret a choice (such as eating a candy bar instead of an apple), or make errors in judgement (for example, assign too much weight to highly unlikely events such as a lightning strike). Economic policies can look very different when people exhibit these kinds of behavior.

None.

Knowledge

Students have specialized insight into:

• How social preferences and social context alter economic outcomes and policies (Fairness, reciprocity, altruism and social norms)

• How heuristic decision making can lead to cognitive biases and choices that are not in one's best interest (mental accounting, availability heuristic, recency bias, conjunction fallacy, etc.).

• How inconsistent preferences can arise and how they challenge policymaking (time-inconsistency, self-control, loss aversion, etc.).

• How the context in which a decision is made can influence preferences and choices (framing, prospect theory, etc.).

Skills

The students can:

• Analyze empirical evidence, often from experiments, for behavior that does not adhere to "economic rationality".

• Model behavioral preferences and decision processes to analyze economic policies.

• Analyze various economic policy options when behavior is not economically rational.

• Deal critically with the pitfalls of behavioral economics in making policy recommendations, such as excessive paternalism or the lack of a clear welfare criterion.

Lectures with active student participation.

None

Written exam (4 hours) at the end of the semester.

One dictionary (Native language-English/English-native language or English-English).

Calculator (as specified in regulations for use of calculator).

Letter grading A-F.

An internal and an external examiner will grade the exam.