040319 VO Economic Psychology (2023W)

This lecture gives an introduction to economic psychology. We cover:
1. The development of economic thought with respect to psychology: Difference between economic psychology and behavioral economics. In what aspect does psychology inform economics, historical milestones in the development of economics with respect to behavioral/psychological insights.
2. How preferences and values are constructed: Psychological approaches advance the idea that preferences are constructed on the spot and are susceptible to context, circumstances that give fertile ground for constructed preferences, regularities of constructed preferences, decoy and compromise effects, coherent arbitrariness.
3. The decision under uncertainty and ambiguity aversion: Prospect theory, Ellsberg-paradox, and their consequences in judgment and decision-making.
4. Choice over time: Challenges of standard discounted utility and their remedies. Hyperbolic discounting, present-biased behavior. Dynamic inconsistency. Self-control.
5. (Mis)predicting future taste and utility: Regularities in people’s inability to correctly predict their future preferences and tastes and the practical and daily consequences of these behaviors.
6. Choice architecture: An overview of behaviorally informed public policy. Rationales and tools for interventions rely on behavioral regularities. Reviewing some basic success in using nudges to beneficially change behavior.