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040062 UK Behavioral Economics (MA) (2021S)

Track in Behavioral Economics and Experiments

8.00 ECTS (4.00 SWS), SPL 4 - Wirtschaftswissenschaften
Continuous assessment of course work


Note: The time of your registration within the registration period has no effect on the allocation of places (no first come, first served).


max. 50 participants
Language: English


Classes (iCal) - next class is marked with N

asynchronous and digital

Friday 26.03. 13:15 - 14:45 Digital
Friday 23.04. 13:15 - 14:45 Digital
Friday 30.04. 13:15 - 14:45 Digital
Friday 28.05. 13:15 - 14:45 Digital
Thursday 24.06. 11:30 - 13:00 Digital
Friday 25.06. 13:15 - 14:45 Digital


Aims, contents and method of the course

This course is designed to make you familiar with the most relevant concepts of behavioral economics. After following this course, you will be able to answer the following paradoxes:

- Why do people pay more for a diamond than for a month’s water consumption even though water is more useful?

- Why are people only willing to pay a modest fee for a lottery of infinite value?

-How could the same individual gamble and buy insurance?

- Under standard economic theory rejecting a lottery offering -1.0 Euro with 50% chance and 1.1 Euro with 50% chance implies rejecting a lottery offering infinity Euros with 50% chance.

-Why do people exhibit a preference for betting on events with known probability?

-Why do people make plans that they cannot fulfill?

-Why aren't there more tragedy of the commons?

To explain these paradoxes, you are going to get acquainted with the most relevant theories in the field. Namely rank-dependent utility theory, cumulative prospect theory, hyperbolic discounting, inequity aversion, level-k theory, and quantal response equilibrium.

To understand these alternative theories, we will also review and understand their standard counterparts: expected value, expected utility theory, exponential discounting utility, and Nash equilibrium.

Rather than only introducing and reviewing these models through mathematical formulae, I also focus on their behavioral foundations, i.e. their axioms. We will understand how these foundations of preference translate into the mathematical formulae you might be familiar with. This process makes clear that abstract concepts such as utility and (subjective) probability have an intuitive behavioral foundation.

Finally, note that my job is to convince you that the alternative theories that I present 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!

Assessment and permitted materials

The grade of the course will be assessed using these criteria:
-Midterm Exam ( weighting 35% of the total grade): tests the student's knowledge of the first half of the course.
-Final Exam (weighting 35% of the total grade): tests the student's knowledge of the course.
-Problem Sets (weighting 30% of the total grade): A total of three problem sets throughout the course that serve as a training for the exams.

In each of these criteria students can attain a maximum total of 100 points. To guarantee consistency, each of these criteria, as well as the final note of the course, can be converted to the University grading scheme according to the following scale:

-1: 100 points-86 points
-2: 85 points-70 points
-3: 69 points-60 points
-4: 59 points-50 points
-5: less than 50 points.

This means that to pass the course the student needs to attain at least 50% of all available points.

Minimum requirements and assessment criteria

Students should have completed an intermediate microeconomics course, where they gained basic knowledge on consumer theory and game theory.

Examination topics

Week 1: Motivation (of the course) and utility representations.
Week 2: Expected value and expected utility theory.
Week 3: Anomalies of expected utility and rank-dependence.
Week 4: cumulative prospect theory.
Week 5: ambiguity, ambiguity aversion and source dependence.
Week 6: exponential discounted utility.
Week 7: Midterm week.
Week 8: anomalies of exponential discounted utility and hyperbolic discounting.
Week 9: Game theory review.
Week 10: Anomalies of strategic interaction.
Week 11: Inequity aversion and other theories of social preferences.
Week 12: Final exam week.

Reading list

Wakker, P. P. (2010). Prospect theory: For risk and ambiguity. Cambridge university press.

Dhami, S. (2016). The foundations of behavioral economic analysis. Oxford University Press.

Gilboa, I. (2009). Theory of decision under uncertainty (Vol. 45). Cambridge university press.

Association in the course directory

Last modified: Mo 03.05.2021 11:07