School of Government – Behavioral Economics and Decision Making (Part One 2016)



Seminars Content

•1.     Introduction. Decision Theory primer; Allais and Ellsberg paradoxes; Descriptive theories.

  •  Required Readings:
  • Plous, ch 7 and 8
  •  Tversky and Kahneman “Rational Choice and the framing of decisions”  The Journal of Business, vol.59, n.4 pp. s251-s278

•2.     Cognition. Dual Process of reasoning; judgment and decision making.

  •  Required Readings: Kahneman, “Maps of Bounded Rationality” (Nobel Prize Lecture)

•3     Prospect Theory. Value function; Endowment Effect; Mental Accounting

  •  Required Readings: Plous, chs. 9

•4.     Heuristics and Bias (Law of small numbers. Availability. Base-rate Fallacy )

  • a. Required Readings: Plous, chs. 10

•5.   Behavioral approach to political decision making

  • Required Readings:
  • Quattrone and Tversky “Contrasting rational and psychological analyses of political choice”
  • John Gasper “Make it Rain”



Reference reading material

Course Presentation (slides)

Course Presentation (paper) TheDualProcessAccountOfReasoning

Tversky and Kahneman “Rational Choice and the framing of decisionsThe Journal of Business, vol.59,n.4 pp. s251-s278

Download Tversky and  Kahneman Rational Choice

Comments and further discussion to Tversky and Kahneman:

Daniel Kahneman, ” Maps of bounded rationality: A perspective on intuitive judgment and choice” , Nobel Prize Lecture, 20028-O

Download Kahnemann Nobel Lecture

Scott Plous, The Pshychology of Judgment and decision Making, McGraw-Hill ,1993:-|

George A. Quattrone and Amos Tversky “Contrasting rational and psychological analyses of political choice” , The American Political Science Review, Vol. 82, No. 3 (Sep., 1988), pp. 719-736 1988

Download Quattrone Tversky  “Contrasting rational and psychological analyses of political choice”

Download  John Gasper  “Make It Rain”

Some complementary reading

Arrow impossibility Theorem

Suggested preparatory readings

Introduction to Prospect Theory


Educational goals    This course is intended to allow students to become familiar with  the literature in  behavioral economics and political  decision making . While this approach is based on the experimental data about human reasoning (provided by cognitive psychology) , students will be driven to test experimentally properties and assumptions on human decisions.Major goals will be that of enabling students to gain in-depth understanding of the major aspects of  behavioral decision-making under uncertainty, and applications to economics, politics and finance, as well as to apply effectively the theories to ongoing debates, in order to raise their interest in carrying out research in this field.

Teaching method  In-class lectures, computer-aided exercises and test sets, tutorials

Assessment Method  Computer-aided written final paper

Criteria for deciding on subject of final paper  Exam grade, one-on-one colloquium

Preparatory courses   Microeconomics , Elementary Statistics

Students are supposed to be familiar with the basic issues in Risk and Decision Making. One possible suggested reference  reading on this matter is chapter “Risk and Decision Making”, in  “Markets, Games, and Strategic Behavior: Recipes for Interactive Learning” by Charles Holt. Downloadable at

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