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Introduction to Behavioural Economics

Module description

This module provides an introduction to the field of behavioural economics and focuses on the decision making processes, both as individual and in groups. The course focuses on some of the inherent biases in our decision processes and challenges the assumption of rationality in decision making. The course provides a number of examples of behavioural biases which reflect that we can be “predictably irrational” in our decision making processes. Once we have established a better understanding of some of the inherent biases ion our decision processes, we then turn to discuss how public policy can “nudge” individuals and groups to make better decisions using the knowledge we have developed. This includes a discussion on how we can affect decision making processes to increase savings rates, and making better decisions for the environment and our health.  The course requires the ability to critically analyse readings and only a very modest amount of quantitative proficiency will be required.

Students will be assessed through a combination of a short (10-15 minute) group presentation where they will need to develop their own experiment which highlights a defined behavioural biases and a written exam where students will be required to answer essay based questions.

The assessment structure on this module is subject to review and may change before the start of the new academic year. Any changes will be clearly communicated to you before the start of term and if you wish to change module as a result of this you can do so in the module change window.

Module aims - intentions of the module

• Economics offers powerful insights into the world in which we live. This introductory behavioural economics course aims:
• to provide an essential, simple, useable body of economic theory, which will both provide the basis for further study and equip students with a real understanding of the role of behavioural economics in business, public and private decision making.
• to encourage students to understand how we make decisions (thinking fast and slow) and why we can sometimes make poor decisions.
• to give students an understanding of how businesses use economic theory to make decisions.to illustrate how behavioural economics is relevant to businesses in particular decision making and marketing.
• to develop students’ understanding of the how we can use economic theory to enrich and improve our welfare to examine how changes in economic policy will affect business behaviour.
• to convince students, using a blend of theory, applications and policy analysis, that behavioural economics is both fascinating and highly relevant.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

• 1. define what is meant by the term “behavioural economics” and how this particular field of economics has developed and fits within the context of the broad field of “economics”;
• 2. describe how we make decisions, in particular the difference between thinking “fast” and thinking “slow” as developed by Nobel Prize winning economist Daniel Kahneman;
• 3. recount some of the biases that affect our decision making, including anchoring, present bias, representativeness, availability, halo effect, regression to the mean;
• 4. define Prospect Theory and its implications for decision making;
• 5. explain group pressures such as groupthink, group polarization, and informational cascades and how they affect our decision processes particularly in groups.;
• 6. explain the Akerlof and Shiller’s concept “phishing for phools” and the implications that has for public policy and economic progression;
• 7. define the concept of a “nudge”, and describe nudges can affect behaviour across a wide range of areas such as health care, the environment and savings.

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

• 8. demonstrate good reasoning and problem solving skills;
• 9. demonstrate an understanding of the links between current economic problems and economic theory and in particular how an understanding of behavioral biases is critical for the creation of effective policies to address critical issues we face around savings, health and the environment.

ILO: Personal and key skills

On successfully completing the module you will be able to...

• 10. demonstrate good problem-solving and independent study skills and use the ELE and the online resources that are companion to the textbook to develop IT skills participate in group work;
• 11. produce high quality work in written form;
• 12. practice independent study skills;

Syllabus plan

• Introduction to the field of behavioural economics and how this differs from “standard” economic theory
• Discussion on how we make decisions with a focus on thinking fast and slow
• Discussion of the biases that affect deciosn making and  why we are “predictably irrational” in many of our decision processes
• Discussion on Prospect Theory and its implications for decision making
• Discussion of Akerlof and Shiller’s critique of demand and supply and the potential for manipulation and deception by the supply side as highlighted in their book Phishing for Phools
• An introduction to the term Nudge economics and how it can be used to improve welfare

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Indicative learning resources - Basic reading

Kahneman, D. (2011), Thinking, Fast and Slow, Penguin Group.  

Ariely, D. (2009), Predictably Irrational, HarperCollins

Thaler, R. H. Sunstein, C. R. (2009), Nudge, Yale University Press.

Key words search

Behavioral economics, decision making, consumer behaviour, nudge economics