040062 UK Behavioral Economics (MA) (2019S)

This course is designed to make you familiar with the most relevant concepts from behavioral economics. After following this course, you will be able to understand and provide an answer to the following paradoxes (in economics):

- Why do people pay more for a diamond than for a month’s water consumption even though water is more useful?
-How could the same individual gamble and buy insurance at the same time?
-How is it possible that there exists a market of insurance for extremely low probability events?
-Why do individuals incur in consistent credit card debt?
-Why do individuals fall short from their saving goals?
- Why do individuals donate to charities?
- Why are there tragedies of the commons and how can we solve them?

To explain these paradoxes, you are going to get acquainted with the most relevant theories and solution concepts of the field, namely (Cumulative) Prospect Theory, Rank-Dependent Utility Theory, Hyperbolic Discounting, Inequity Aversion, Level-K theory and Quantal Response Equilibrium.

To understand these alternative theories, we will also review and understand in depth the assumptions of the most relevant standard theories and solution concepts in economics, namely expected value, expected utility theory, exponential discounting utility, and Nash equilibrium.

Finally, note that my job is to convince you that the alternative theories are better descriptive approximations than their standard counterparts with the support of data from experiments, data from surveys, data from economic phenomena, and your own decisions!