Behavioral Economics
Study Board of Market and Management Anthropology, Economics, Mathematics-Economics, Environmental and Resource Management
Teaching language: English
EKA: B560023112, B560023122, B560023132
Censorship: Second examiner: None
Grading: 7-point grading scale, Pass/Fail
Offered in: Odense
Offered in: Autumn
Level: Master
Course ID: B560023101
ECTS value: 10
Date of Approval: 19-02-2018
Duration: 1 semester
Course ID
Course Title
Teaching language
ECTS value
Responsible study board
Study Board of Market and Management Anthropology, Economics, Mathematics-Economics, Environmental and Resource Management
Date of Approval
Course Responsible
Offered in
Level
Offered in
Duration
Mandatory prerequisites
Recommended prerequisites
Prerequisites for this course are a basic knowledge of microeconomics at the undergraduate level. More specifically, it is important that students have a good understanding of consumer demand - in particular how the consumer utility maximize. Further, it is expected that the student also has knowledge of the key elements of within game theory - especially the most common types of games, such as cooperative and non-cooperative games and one-shot and repetitive games. This can be achieved in the courses Microeconomics (course no. 9115501) and Strategy and Market (course no. 9105801) or literature equivalent to: Perloff: Microeconomics. Theory and applications with calculus. Pearson Addison Wesley, 2010, 2nd edition. Og Dixit, S. Skeath, and D. Reiley: Games of Strategy - Norton.
Aim and purpose
The interest in behavioral economics has increased significantly in the last decades as a result of an increased interest in understanding and predicting human behavior and actions from e.g. public interventions. In 2002, Daniel Kahneman and Vernon Smith, won the Nobel Prize in Economics for their particular contributions within the development of behavioral and experimental economics. The purpose of the course is the branch of behavioral economics. Behavioral Economics is moving within a subject areaintegrates of economic theories and concepts with theories from the psychology literature. Often these theories and concepts are tested experimentally. The course will focus on individual’s quasi-rational behavior in decision making, by modifying the standard economic assumptions concerning rationality and decision making. Bounded rationality, limited willpower and limited self-interest are three key areas in which human behavior and choices diverge from rational behavior in the economic sense. These are examples of core concepts that will be discussed during the course. The students in the course will be stimulated to think precisely (and often formally) about what it is that specifically determines a given behavior or economic performance and how in practice this could be tested in a hypothesis setting. As a natural consequence of this, part of the work will be based on data and documentation such as results based on experiments and surveys, which some economists tend to ignore.
Content
Rational choice and decision making
In an ideal world, defaults, frames, and price anchors would not impact on consumer choices. Individual decisions would be the result of a careful weighing of costs and benefits and informed by existing and stable preferences. While it is implicitly assumed in standard economic theory that consumers are able to treat all information in a completely rational way, it is now widely recognized that preferences are context dependent and that there are limits to how much information consumers can actually handle. To select between competing products in a potential situation of choice, consumers will often use different resolution strategies that differ from the fully rational individual – resulting in biases and heuristics in decision making. We will look at the assumptions underpinning the standard economic model , so as to identify the anomalies in consumer choice and decision-making processes.
Choice under risk and uncertainty
We will here focus on anomalies that violate the assumptions of standard economic theory under uncertainty and introduce alternative models that overcome some of the shortcomings of the standard expected utility model. Most notably this involves the development of the alternative theory know as prospect theory by Kahneman and Tversly (1972). Prospect theory is is one of the most well-known phenomena in behavioral economics. The theory states that individuals have a tendency to be less willing to gamble with gains than with losses. This is known as “loss aversion” and implies that preferences are reference dependent. Another well-established theory that also will be covered in the course is the theory of Mental Accounting, which builds on prospect theory.
Intertemporal choice
Many individual decisions involve intertemporal choices including various investment decisions and life style/health decisions. According to economic theory such decisions are influenced by individual’s time preference rate. To be able to investigate the impact of time preferences on intertemporal choices an individual measure of time preferences is needed. Here experimental economics have played an important role in developing approaches to the estimation of time preference rates. In standard economic theory it is further assumed that the individual time preference rate is constant implying among other things that choices are time consistent. This assumption, however, has often been found to be violated in empirical and experimental studies leading to the development of models allowing for time inconsistent preferences such as the hyperbolic discounting model.
Behavioral Game Theory and social preferences
Another important topic in behavioral economics is how individuals interact with others in making decisions. Behavioral game theory analyses interactive strategic behaviour and decisions using methods of game theory and experimental economics. This involves laboratory experiments using simple games to study why individuals not always act rational and according to the utility maximizing rule. Experiments include testing deviations from economic theory such as fairness and altruistic preferences. In standard economic theory we assume that individuals are solely motivated by self-interest. In contrast, behavioral economics also operates with issues of social preferences that give models more realism - but at the expense of more complex models.
Learning goals
After attending the course, the students must:
Demonstrate knowledge on the course themes in such a way that the students are able to:
•Describe concepts, theories and methods in behavioral economics
Demonstrate skills in such a way that the students are able to:
•Select and apply relevant concepts, theories and methods to identification and analysis of specific behavioral problems
•To suggest and reflect critically on suggested solutions/initiatives to deal with specific behavioral problems
Demonstrate competencies in such a way that the students are able to:
•Apply and assess theories and methods in a reflected manner and based on sound conceptual underpinnings from behavioral economics
•Plan and perform analysis of selected behavioral case problem
Description of outcome - Knowledge
Description of outcome - Skills
Description of outcome - Competences
Literature
Example
Wilkonson and Klaes. An Introduction to Behavioral Economics. Palgrave MacMillan. Latest version.
Moreover, a number of articles are added.
Teaching Method
Workload
The students' total teaching load is expected to be divided as follows:
Lectures - 45 hours
Preparation for lectures - 90 hours
Project report - 90 hours
Preparation for exam - 44 hours
Exam - 1 hour
Total 270 hours
Examination regulations
Exam
Name
Exam
Timing
Exam: Janaury
Reexam: February
Tests
Exam
Name
Exam
Form of examination
Synopsis with oral examination
Censorship
Second examiner: None
Grading
7-point grading scale
Identification
Student Identification Card - Date of birth
Language
English
Duration
Date for submission will appear from the examination plan.
Length
Extent: 10 pages (one student), 18 pages (2 students), 25 pages (3 students).
Examination aids
Exam Aids: All exam aids allowed with access to the internet.
Assignment handover
Course page in Blackboard.
Assignment handin
Via SDUassignment in the course page in Blackboard.
ECTS value
10
Additional information
The evaluation of the course has two elements (one grade is given):
1- Written group assignment (1-3 students)
2- Individual oral examination, 20 minutes without preparation.
Examination of the written assignment followed by a randomly drawn question from the curriculum.
Re-examination
Form of examination
Synopsis with oral examination
Identification
Student Identification Card - Date of birth
Duration
Students who have passed the examination condition but not the examination:
Individual oral examination, 20 minutes without preparation (Examination of the written assignment followed by a randomly drawn question from the curriculum).
Same as the ordinary exam
Additional information
-
EKA
B560023112
Exam - Students who have not passed the examination condition
Name
Exam - Students who have not passed the examination condition
Form of examination
Synopsis with oral examination
Censorship
Second examiner: None
Grading
7-point grading scale
Identification
Student Identification Card - Date of birth
Language
English
Duration
The evaluation of the course has two elements. Two grades are given, with equal weight:
1.Individual oral examination, 20 minutes without preparation.
•Examination of a written assignment followed by a randomly drawn question from the curriculum.
•The written assignment is individual
Duration: Date for submission will appear from the examination plan.
Location: Home assignment
Length
10 pages (one student)
Examination aids
All exam aids allowed with internet access.
Assignment handover
Course page in Blackboard.
Assignment handin
Via SDU assignment in the course page in Blackboard
ECTS value
10
Additional information
-
Re-examination
Form of examination
Written examination on premises
Identification
Student Identification Card - Exam number
Duration
2 hours written examination
Examination aids
All study material allowed during the examination.
Assignment handover
In the examination room
Assignment handin
Via the course page in Blackboard
Additional information
Written examination on the curriculum.
EKA
B560023122
Participation
Name
Participation
Form of examination
Participation
Censorship
Second examiner: None
Grading
Pass/Fail
Identification
Student Identification Card - Date of birth
Language
English
Preparation
-
Duration
Student Activity as part of the course, including 1) presentation of group assignment and 2) compulsory attendance for lessons with group activities. (9110912).
ECTS value
0
Additional information
Student Activity as part of the course, including 1) presentation of group assignment and 2) compulsory attendance for lessons with group activities. (9110912).
EKA
B560023132
External comment
NOTE - This course is identical with the former course 9110901Behavioral Econiomics.
Used examination attempts in the former identical course will be transferred.
Courses that are identical with former courses that are passed according to applied rules cannot be retaken.
The student is automatically registered for the first examination attempt when the student is registered for a course or course element with which one or more examinations are associated. Withdrawal of registration is not possible, and students who fail to participate in an examination have used one examination attempt, unless the University has made an exemption due to special circumstances.
If a student does not meet the established university prerequisites for taking the exam, he or she has used one examination attempt, unless the University has made an exemption due to special circumstances.
Examination in this course is not allowed if the student has passed the bachelor's course Introduktion til adfærdsøkonomi (9852102).