Behavioral Psychology and Economics : Syllabus of The Course

The Course is taught with Prof Giacomo Sillari

NEW     EXAM Dates   May 7,  June 5, June 21    

 Short introduction (Talks)

PART I –    Individual decision making

1.   Introduction. Do human beings behave rationally? 

Introduction to the Course (required) presentation

1.1 Violations of  logical reasoning

• Wason Selection task (required)

1.2  Expected Utility Theory and its violations.

• Allais’ Experiment (required)
• Plous, “The Psychology of Judgement and Decision Making”,  chapters 7 and 8 (required)
• Comments on Plous: Ellsberg Paradox and Preference-Reversal

Suggested Reading: Slovic the construction of preferences

2 The alternative view: Problem Solving and Bounded Rationality

• Bounded Rationality and Artificial Intelligence
• Finding the winning strategy in a game (suggested to better understand heuristics)

3     Cognition. Dual Process of reasoning; judgment and decision making.

Required Readings:

• Kahneman, “Maps of Bounded Rationality” (Nobel Prize Lecture) limited to par 1- 4
•  Evans “In Two Minds: The Dual Process Account of Reasoning”

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• Experimenting Perceptive Illusions
• An experiment on Dual Model: playing Target The Two  (suggested)

4   Prospect Theory

Introduction (Youtube)

Required Readings:

•  Tversky and Kahneman:  Rational Choice and the framing of decisions”  (The Journal of Business),   par 1,2,3.
• See also  Plous, chapter 9
• Applications of Prospect Theory
•  Summarizing what we have discussed so far: from Expected Utility Theory  to Prospect Theory

• Properties of Prospect Theory (advanced, suggested)

5     Heuristics and Bias

Required Readings:

• Heuristics  (Representativeness, Availability, Anchoring)
• Plous, ibidem, chs. 10-13 ((Law of small numbers. Anchoring. Availability. Conjunction Fallacy.Base-rate Fallacy. Regression to the mean)
•  Suggested Readings: Plous, ibidem, chs. 17-18
• Heuristics – Fast and frugal decisions (Gigerenzer Ted Talk)

PART II –    Social choice

II  –  Collective Behavior and Action – Why people cooperate?

Elementary introduction of the basic ideas

• Ultimatum Game      (YouTube, required) Introduction   –   see also
• Prisoner’s Dilemma  (YouTube, required) Introduction   –   see also   –  Further discussion ( Pareto equilibrium and Nash equilibrium) –  Iterated Prisoner’s dilemma (YouTube)

A classical application : The Tragedy of Commons (YouTube, required)

The emergence of cooperation  among selfish rational individuals, and other evolutionary process.

Collective Action Problem (required)

Required readings

Ostrom   Social Norms

Fehr and Fishbacker Social norms and human cooperation

 Suggested Readings

• E. Anderson – Beyond Homo Economicus – The impact of social norms on rationality
• Discussion on Mancur Olson  “The Logic of Collective Action”
• Cristina Bicchieri – Norms in the Wild
• Ostrom-BehavioralApproachRational
• Robert Boyd, Samuel Bowles, Colin Camerer, Ernst Fehr, Herbert Gintis, And Richard Mcelreath (2001)  In Search of Homo Economicus: Behavioral Experiments  in 15 Small-Scale Society

APPLICATIONS

Behavioral decisions in Politics

Behavioral Finance

Nudging

Reference reading material

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

Basic Requirements for the course

Rational Choice Theory of Individual Action

(Expected Value,  Fair Games, St Petersburg Game, Expected Utility, Risk Attitudes)

Rational Choice Theory of Collective Action (basics)

Edgeword Box and Pareto Efficiency  Youtube elementary introduction – Nash equilibrium (through examples)

MIDTERM STUDY GUIDE 2023

Midterm Review

Educational goals    This course is intended to allow students to become familiar with  the  behavioral approach to economics and to 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 and oral exam

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

Preparatory courses   Microeconomics , Elementary Statistics