Lecture 2: Behavioral Economics and Decision Making

Business & Economics - 12 slides

This lecture delves into behavioral economics, emphasizing the impact of psychological factors on economic decision-making. Key concepts such as heuristics, biases, and prospect theory are explored, illustrating how they influence consumer behavior and policy-making.

Topics Covered

  • Introduction to Behavioral Economics
  • Heuristics: Mental Shortcuts in Decision-Making
  • Biases Resulting from Heuristics
  • Prospect Theory: A New Paradigm in Decision-Making
  • Framing Effects and Consumer Behavior
  • Applications: Nudging and Choice Architecture
  • Loss Aversion: More Avoidance than Aspiration
  • Time Inconsistency: Present Bias and Procrastination
  • Regret Aversion in Economic Behavior
  • Hyperbolic Discounting and Long-Term Decisions
  • Behavioral Economics in Public Policy Design
  • Summary and Closing Insights

References

  • Kahneman, D. and Tversky, A. (1974) 'Judgment under Uncertainty: Heuristics and Biases', Science, 185(4157), pp. 1124–1131.
  • Thaler, R.H. (1999) 'Mental Accounting Matters', Journal of Behavioral Decision Making, 12(3), pp. 183–206.
  • Kahneman, D. and Tversky, A. (1979) 'Prospect Theory: An Analysis of Decision under Risk', Econometrica, 47(2), pp. 263–291.
  • Barberis, N.C. and Thaler, R.H. (2003) 'A survey of behavioral finance', Handbook of the Economics of Finance, 1, pp. 1053–1128.
  • Kahneman, D. and Tversky, A. (1979) 'Prospect Theory: An Analysis of Decision under Risk', Econometrica, 47(2), pp. 263-292.
  • Tversky, A. and Kahneman, D. (1981) 'The Framing of Decisions and the Psychology of Choice', Science, 211(4481), pp. 453-458.
  • Thaler, R.H. and Sunstein, C.R. (2008) Nudge: Improving Decisions About Health, Wealth, and Happiness. New Haven: Yale University Press.
  • Kahneman, D. and Tversky, A. (1979) 'Prospect Theory: An Analysis of Decision under Risk', Econometrica, 47(2), pp. 263-291.
  • Ainslie, G. (1975) 'Specious reward: A behavioral theory of impulsiveness and impulse control', Psychological Bulletin, 82(4), pp. 463-496.
  • Thaler, R.H. and Benartzi, S. (2004) 'Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving', Journal of Political Economy, 112(S1), pp. S164-S187.
  • Loomes, G. and Sugden, R. (1982) 'Regret Theory: An Alternative Theory of Rational Choice Under Uncertainty', The Economic Journal, 92(368), pp. 805-824.
  • Laibson, D. (1997) 'Golden eggs and hyperbolic discounting', Quarterly Journal of Economics, 112(2), pp. 443-477.
  • Thaler, R.H. and Sunstein, C.R. (2008) Nudge: Improving Decisions About Health, Wealth, and Happiness. London: Penguin.
  • Kahneman, D. (2003) 'Maps of bounded rationality: Psychology for behavioral economics', American Economic Review, 93(5), pp. 1449-1475.
Browse all lectures