Behavioral Economics

EC311 Behavioral Economics (Fall 2016)


Seminar Leader: Martin Binder
Course Times: Mon 13:30-15:00, Wed 15:15-16:45

Course Description
While much of the core of economic theory is based on the rational choice model of human activity (i.e. the human being is seen as homo economicus, a hyper-rational and solely self-interested individual), research in psychology calls for a more realistic picture of human decision-making. Behavioral economics is the subdiscipline of economics that aims at modifying the rational choice model of behavior in the direction of a more realistic model that accounts for bounded rationality, the use of heuristics, and the analysis of how human decisions are driven by emotions, and distorted by various biases. This course familiarizes students with this new and fascinating approach to economics and presents economic models that take into account the rich psychological structure of human decision-making. We analyze the consequences of using such a nuanced behavioral model of decision-making, and of taking into account the existence of social preferences (such as other-regarding, altruistic preferences) and so forth. The course deals also with the implications human irrationality would have for economic policy-making as well as research into human subjective well-being (“happiness”) and its economic correlates.

Learning Outcomes

  • In-depth understanding the basic model of economic decision-making (“rational choice”)
  • Critical assessment of its strengths/weaknesses in modeling economic behavior
  • Knowledge of alternative modes and models of decision-making and modifications to the standard model
  • Ability to understand the role of psychology in economics
  • Better ability to make real-world decisions (hopefully ;-))

For this course, we will use a textbook as well as a series of relevant journal articles. The textbook is called “A Course in Behavioral Economics” by Erik Angner and has to be bought by the student (Palgrave MacMillan, 2nd edition preferably). All additional readings will be provided as necessary as the course progresses. At the end of the syllabus, you’ll also find an assortment of background literature to the topics covered in class (the background literature is not mandatory but provides a first, non-technical introduction to the course; these books should also be in our library).

Attendance at ALL classes is expected. More than two absences (that is absences from two sessions of 90 minutes) in a semester will significantly affect the grade for the course. The two absences are meant as insurance policy for you in case of illness or other unforeseen yet important events outside of the classroom.

Assessment will be based on attendance, preparation for classes, regular and active participation, professionalism (see below), as well as one in-class presentation, one shorter essay (1500 words), peer-grading of the short essay of a co-student, and a longer final essay (3500 words).

Policy on Late Submission of Essays
As per student handbook, essays that are up to 24 hours late will be downgraded one full grade (from B+ to C+, for example). After that, I will accept late submissions as per student handbook, but these cannot receive a grade of higher than C.

Grade Breakdown
Seminar preparation, professionalism and participation 30%
Presentation of one week’s seminar topic 10%
Midterm essay 20%
Peer-grading of midterm essay 10%
Final essay (topic different from midterm essay and in-class presentation) 30%

(Quizzes will be administered regularly only if the instructor deems the preparatory reading morale of the class to be insufficient. There will be no quizzes if everybody comes to class prepared.)

Classes start on Monday Aug 29 and run until Wednesday Dec 07, with fall break planned for Oct 17–21, 2015. Completion week will take place Dec 12–16.

Scheduled class times are available online under the relevant course heading:

A detailed schedule will be provided in class.

Part I – Choice and behavior in economics

  • Introduction/methodological considerations
  • Rational choice (under certainty, risk and uncertainty)
  • Deviations from rational choice
  • Alternatives: heuristics, satisficing

Part II – Strategic interaction and altruistic preferences

  • Game theory
  • Behavioral game theory

Part III – Subjective well-being (Happiness)

  • What is happiness, how do we measure it?
  • What makes us happy? Do we know this?
  • The politics of happiness (or better not?)

Part IV – Behavioral welfare economics/Nudging

  • Normative consequences of behavioral economics
  • Nudging and its alternatives


Classes missed due to federal holidays will not be rescheduled.

Being a student is your full-time job and with it come a set of responsibilities and expectations, as with any other job. Maintaining a professional attitude towards your course of studies is something that also prepares you for later work life. A professional attitude towards your studies is shown by coming to class on time, being prepared, being courteous to your teachers and fellow co-students. It is exhibited by writing your essays with care, actively participating in class, avoiding distractions (excessive bathroom breaks, using smartphones to check on irrelevant issues during class etc.), not missing classes except for the most dire of circumstances and in general by adapting to the rules of the course without trying to bargain for personal exceptions.

Ethics/Academic honesty
A core value of the academy is truth and the pursuit thereof. Nothing can shake the foundations of this pursuit as much as academic dishonesty as it undermines trust in this pursuit. This is why I will not condone any instance of academic dishonesty. Plagiarism, cheating during exams, copying homework assignments (or doing individual assignments with a classmate) all constitute violations of academic honesty and of the clause on “academic integrity” that each student has signed in the student handbook. They can lead to failing the course and will be reflected in the student’s record (having a record of academic dishonesty can make getting grants, stays abroad or admission into other programs difficult if not outright impossible).

Background literature (all good reads for the nightstand)

  • Ariely, D. (2009). Predictably Irrational. HarperCollins, New York.
  • Kahneman, D. (2011). Thinking Fast and Slow. Penguin Books.
  • Thaler, R. H. (2015). Misbehaving. W. W. Norton, New York.
  • Thaler, R. H. and Sunstein, C. R. (2008). Nudge – Improving Decisions about Health, Wealth and Happiness. Penguin Books, London.

(version: 05.08.2016)