Behavioral Economics - Syllabus

Transcription

1 Behavioral Economics - Syllabus 1 st Term - Academic Year 2016/2017 Professor Luigi Mittone luigi.mittone@unitn.it Teaching Assistant Viola Saredi violaluisa.saredi@unitn.it Course Overview The course aims to provide students with a grounding in the main areas of behavioral economics, by focusing on behavioral implications of theoretical models and on experimental evidence in economics. These main areas include bounded rationality, decision-making under risk and uncertainty, other regarding preferences, intertemporal decision-making, behavioral game theory, emotions and libertarian paternalism. For each area, the focus will be on three points: (i) review of standard economic models and evidence that indicates that such models do not capture some important behavioral aspects or anomalies; (ii) study of the behavioral models that have been developed to capture these aspects; (iii) application of these models to different economic fields, especially with respect to more recent contributions. In particular, lectures will deal with the first two points, while the third one will be developed by means of assignments over the semester. Preparatory and General Readings By and large, the course will be based on academic papers (which are available online) and lecture notes (slides). However, besides the assigned reading list, there are some books that you may find useful, if you are interested in getting a deeper knowledge about behavioral and experimental economics. The first is Advances in Behavioral Economics (2004) by Colin Camerer, George Loewenstein and Matthew Rabin. The second is An Introduction to Behavioral Economics (2012) by Nick Wilkinson and Klaes, or A course in behavioral economics (2012) by Erik Angner. The third is Behavioral Game Theory (2003) by Colin Camerer. Finally there is Handbook of Experimental Economics (1995) by John Kagel and Alvin Roth. Here you can also find the suggestion of some interesting readings: Gut Feelings (2008) by Gerd Gigerenzer, Nudge (2009) by Richard Thaler and Cass Sustein, Predictably Irrational (2009) by Dan Ariely, The Upside of Irrationality (2010) by Dan Ariely, The Honest Truth about Dishonesty (2013) by Dan Ariely, Thinking, Fast and Slow (2011) by Daniel Kahneman, The Power of Habit (2012) by Charles Duhigg, and Foundations of Behavioral Economic Analysis (2015) by Sanjit Dhami. 1

2 Course Requirements and Assessment Method Students will be expected to be familiar with Mathematics, Statistics, Microeconomics, and Game Theory. Assessment The final grade depends on a written exam, and some online and in class activities. References will be provided during the course. Course Outline The course will cover the following topics. Introduction to Behavioral Economics Information about the structure of the course, and the assessment method What is Behavioral Economics? Behavioral Economics and the Standard Economic Models (The Neoclassical Repairshop) Evaluating Economic Theories (Ho, Lim and Camerer, 2006) Behavioral Economics History and Evolution: the Neoclassical Approach. The Resurgence of Psychology. Birth of Behavioral Economics as we know it Methodology and Data Sources (Economics and Psychology); Introduction to Experimental Economics; Introduction to Neuroeconomics Domains of interest Experimental Method Reasons to run experiments in economics How to build an experimental sample Methodological standpoints Transferring experimental results to reality Statistical analysis Bounded Rationality The notion of Bounded Rationality 2

3 The emergence of bounded rationality Simon s Bounded Rationality Does Bounded Rationality need to be understood? Ecological Bounded Rationality Fast and Frugal Heuristics A formal model of Bounded Rationality Models of Decision-making and Anomalies in Preferences Rationality Issue: Axioms and Assumptions under Standard Economic Models (SEM) Weaknesses of Standard Economic Models Failure of Transitivity, Reference Dependence (Context Effect, Loss Aversion, Endowment Effect, Anchoring Effect, Diminishing Sensitivity), Failure of Cancellation, Failure of Invariance, and Failure of Dominance and Invariance Reason-based Choice (Shafir et al., 1993) Choice between equally valued alternatives Choosing to accept vs. choosing to reject Seeking option Adding option Biases in Judgment (Kahneman, 2003) The Architecture of Cognition (Kahneman, 2003) Heuristics: a comparison Decision-making Under Risk and Uncertainty Expected Utility Theory (Axioms) Anomalies in Expected Utility Theory: The Common Consequence Effect, The Common Ratio/Certainty Effect Conventional alternatives to Expected Utility Theory: Disappointment Theory, Decision- Weighting Theories, Rank-dependent Utility Non-conventional alternatives to Expected Utility Theory: Regret Theory, Prospect Theory Prospect Theory Editing Phase and Comments 3

4 Evaluation Phase Reference Point Loss Aversion Shape of the Utility Function Decision Weighting Decision From Description vs. Decision From Experience Other-regarding Preferences The standard self-interest hypothesis. Evidence from the lab (Ultimatum Game, Gift Exchange Game, Trust Game, Public Good Game). Possible interpretations: learning models? Social norms? Social Preferences Altruism and quasimaximin preferences Relative income and envy Inequity Aversion Altruism and Spitefulness Intention-based Reciprocity. Fairness Equilibrium Intentions in Sequential Games Merging Intentions and Social Preferences Brief introduction to Guilt Aversion. Endocrinological economics of social preferences Intertemporal Decision-Making Introduction: Discounted Utility Model, Time Discounting, Time Preferences Origins of Discounted Utility Discounted Utility Model: Integration of new alternatives; Utility independence; Consumption independence; Stationary instantaneous utitlity; Stationary discounting; Independence of discounting from consumption; Constant discounting and time consistency; Diminishing marginal utility and positive time preferences Discounted Utility Anomalies Sign Effect Magnitude Effect 4

5 Delay-Speedup asymmetry Preference for Improving Sequences Date/delay effect Violations of independence and Preference for Spread Alternatives to Discounted Utility Model Model of Hyperbolic Discounting (time-inconsistent preferences) Quasi-hyperbolic Function Problems of Self-Awareness and Self-Control: Some Examples Sub-Additivity Modifying the instantaneous utility function Habit formation models Reference-point models Models incorporating utility from anticipation. The value of waiting: savoring and dread Visceral influences More radical models Construal Level Theory Projection bias Mental accounting models: choice-bracketing Dual-Self Models Policy implications Tax evasion Consumption Decisions Health Retirement Saving Labor Behavioral Game Theory (Camerer, 2002 and Behavioral Game Theory: Predicting Human Behavior in Strategic Situations in Advances in Behavioral Economics by Camerer) Introduction: What is Game Theory good for? From Game Theory (GT) to Behavioral Game Theory (BGT)? Experimental Regularities Dictator, Ultimatum, and Trust Games 5

6 Mixed Strategies Bargaining Dominance-Solvable Games Coordination Emotions and Decision-making What are Emotions Visceral Factors Emotions and Economics 6