Topics: behavioral economics

TOPICS: BEHAVIORAL ECONOMICS

G31.3002-03

1/23/11

Spring 2011 Mario J Rizzo

Tuesdays, 4-6pm [e-mail]

Behavioral economics is attempting the replace the behavioral

assumptions of neoclassical economics with more "realistic"
psychological foundations. The course examines to what extent this has
been or can be successful. Specifically, we discuss the role of
rationality in economics (both from an analytical and historical
perspective), the policy recommendations based on behavioral
economics, especially as manifested in the "new paternalism." The
course includes a discussion of the work of Daniel Kahenmann and of
critics of behavioralism, such as the experimentalist Vernon Smith.
The course format will combine lecture with class discussion
The purpose of this course is to familiarize the student with some of the fundamental contributions of behavioral economics as well as to enable the student to evaluate them critically. To this end, the syllabus contains both readings that are expository of those contributions and readings that are critical.

Part I: Theoretical Frameworks and Rationality
1. Some “Classical” Views
Ludwig von Mises, Epistemological Problems of Economics (1960 [1933]), pp. 31-35.

http://mises.org/books/epistemological.pdf

Philip H. Wicksteed, The Common Sense of Political Economy, vol. I, Chap.1 (1910), pp. 28-36 (or I.1.23 – I.1.33 online edition).

http://www.econlib.org/library/Wicksteed/wkCS.html

2. Revealed Preference
Ken Binmore, Rational Decisions (2009), pp. 1-24. (Blackboard)
Daniel M. Hausman, “Revealed Preference, Belief, and Game Theory,” Economics and Philosophy, vol. 16, pp. 99 -116. (Bobst)
3. Challenges
Daniel McFadden, “Rationality for Economists?” Journal of Risk and Uncertainty, vol. 19, pp. 73-105 (1999). (Bobst)
John Beshears, James Choi, David Laibson, and Brigitte Madrian, “How Are Preferences Revealed?” Journal of Public Economics, vol. 92, pp. 1787-1794 (2008). (Bobst)
Vernon L. Smith, Rationality in Economics: Constructivist and Ecological Forms (2008), pp. 24-42. (Blackboard)

Part II: Behavioral Issues
4. Time Discounting
Daniel Read, “Intertemporal Choice,” Blackwell Handbook of Judgment and Decision Making (ed. Derek Koehler and Nigel Harvey), pp. 424-433 (2007). (Blackboard)
5. Deficient Willpower
Daniel Read, “Intrapersonal Dilemmas,” Human Relations, vol. 54, 1093-1117 (2000). (Bobst)
Daniel Read, “Which Side Are You On? The Ethics of Self-Command,” Journal of Economic Psychology, vol. 27, pp. 681-693. (Bobst)
6. Cognitive Mistakes and Effort
Gary S. Becker and Yona Rubinstein, “Fear and the Response to Terrorism: An Economic Analysis,” manuscript, 2004 (or later).

http://www.econ.ku.dk/CAM/Files/Autumn%202004/beckerrubinstein_0801.pdf

The Economist, “The Rational Response to Terrorism,” July 23, 2005, vol. 376, p. 76. (Bobst)
7. Daniel Kahneman and Behavioralism
Daniel Kahneman, “Maps of Bounded Rationality: Psychology for Behavioral Economics,” American Economic Review, vol. 93, pp. 1449-1475 (2003). (Bobst)
Daniel Read, “Experienced Utility: Utility Theory from Jeremy Bentham to Daniel Kahneman,” Thinking and Reasoning, pp. 45-61 (2007). (Bobst)
Barbara Fredrickson, “Extracting Meaning from Past Affective Experiences: The Importance of Peaks, Ends, and Specific Emotions,” Cognition and Emotion, vol. 14, pp. 577-606 (2000). (Bobst)
8. Vernon Smith and Experimentalism
Vernon Smith, “Constructivist and Ecological Rationality in Economics,” American Economic Review, vol. 93, pp. 465-508 (2003). (Bobst)
Steven D. Levitt and John A. List, “Viewpoint: On the Generalizability of Lab Behavior to the Field,” Canadian Journal of Economics, vol. 40, no.2 (2007). (Bobst)

Park III: Policy Issues
9. Libertarian Paternalism
Richard Thaler and Cass Sunstein, “Libertarian Paternalism,” American Economic Association Papers and Proceedings, vol. 93, May, 2003, 175-179. (Bobst)
Robert Sugden, “Why Incoherent Preferences Do Not Justify Paternalism,” Constitutional Political Economy, vol. 19, pp. 226-248 (2008). (Bobst)
10. Internalities
Jonathan Gruber, “Smoking’s Internalities,” Regulation, Winter 2002-2003, pp. 52-57.

http://www.cato.org/pubs/regulation/regv25n4/v25n4-12.pdf

Glen Whitman, “Against the New Paternalism: Internalities and the Economics of Self-Control,” Cato Policy Analysis, no. 563 (2006).

http://www.cato.org/pub_display.php?pub_id=5531

W. Kip Viscusi, “The New Cigarette Paternalism,” Regulation, Winter 2002-2003, pp. 58-64.

http://www.cato.org/pubs/regulation/regv25n4/v25n4-13.pdf

11. Critique of Paternalism
Mario J. Rizzo and Douglas Glen Whitman, “The Knowledge Problem of New Paternalism,” Brigham Young University Law Review, vol. 2009, no. 4, pp. 905-968.