Behavioural Economics

Ryan Schill

Behavoiural economicsOver the last half-century, economists have developed sophisticated mathematical models and other analytics to measure and predict economic phenomenon. In recent times, the credibility of these traditional economic tools has become increasingly questioned due to recent global financial turmoil. With many countries still digging out from underneath this economic rubble, alternative methods for understanding the economy have been given further consideration in an effort to rebuild a more robust economy. A revolutionary time in economic theory and practice is occurring. Alternative methods to traditional economics have laid the foundation for radical reconfigurations of economic methods. Unorthodox approaches are now being employed to better understand the mechanics in a post-crash economy, particularly in seeking to grasp the complexities and nuances surrounding financial decision-making.

What is Behavioural Economics? Generally, behavioural economists are interested in the same questions as traditional economists, but they have different assumptions when it comes to finding the answers. Simply put, behavioural economists accept human economic decision-making to be not as meticulous, calculating or orderly as traditional economics would propose.  Human choices are not made in a vacuum but in more a chaotic environment and made in an untidy fashion, affected by a myriad of external influences. Behaviour can be influenced by multiple rationalities, and decisions can be distorted or constrained by choice surroundings, cultural, psychological, or social sensitivities. These and other subtle and not-so-subtle factors contribute to unique individual purchasing and investment choices that lead, eventually, to observable macro financial market phenomenon.

The course will aid you in examining applied mathematic, numerical models and theorems to re-examine and critique their current explanatory powers in financial markets. It will also bolster your understanding of traditional economics and mathematics in terms of investigating its rise, established grip, bounds, credibility, and explanatory influence. However, the vast majority of the course will aid you in understanding how other disciplines can be applied to economics – such as the cognitive sciences.

This course is aimed at: All that are curious about the forces that drive economic mechanics.

Pre-requisite knowledge required: This is an introductory course and spans contemporary findings in behavioural and alternative methods in economics. There are no prerequisites for this economics course although previous economic coursework exposure will deepen and enhance the experience.

Transferable Knowledge and Skills:

The course will develop critical thinking, reading, and writing skills as applied to economics.

Required Reading: Access to case readings will be made digitally available via Ry Schill’s (HBSP) Harvard Business School Publishing account or Moodle account.

Selected readings from the following books will be assigned throughout the duration of the course (all other independent readings will be distributed in class):

  • Akerlof, G. A., & Shiller, R. J. (2010). Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton University Press.
  • Ariely, D. (2010). Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions (1 Exp Rev edition.). New York: Harper Perennial.
  • Kahneman, D. (2013). Thinking, Fast and Slow (Reprint edition.). New York: Farrar, Straus and Giroux.
  • Shiller, R. J. (2005). Irrational Exuberance: (2nd edition edition.) Princeton, N.J: Princeton University Press.
  • Taleb, N. N. (2005). Fooled by Randomness: the hidden role of chance in life and in the markets. New York, Random House
  • Thaler, R. H., & Sunstein, C. R. (2009). Nudge: Improving Decisions About Health, Wealth, and Happiness (Revised & Expanded edition.). New York: Penguin Books.

 

Supplemental Reading:

Wendel, S. (2013). Designing for Behavior Change: Applying Psychology and Behavioral Economics (1st edition.). Sebastopol, California: O’Reilly Media.

Assessment:

1 Final Exam: 50%

1 Final Essay: 50%

Lecture hours: 12 x 1 hour 15 minutes (total 15 hours)

Seminar hours: 8 x 1 hour 15 minutes (total 10 hours)