Curs 2010-2011

Llicenciatura en Administració i Direcció d'Empreses

Llicenciatura en Economia

Psychology and Economics (87290)

Rationale: Recent years have seen growing interest in enriching economic analysis by importing insights from psychology. This is especially true for analyses of individual behavior where much work has been done to make more concrete the implications of bounded rationality. It is not hard to forsee a future in which traditional economic analysis will be at the intersection of many disciplines and methodologies, e.g., psychology, sociology, and neuroscience.
Goals: To expose students to these trends so that they can become wise consumers of these new developments as they become available in the future.
Methods: The course will be based on a set of readings and arranged around different topic areas as detailed below. There is also a list of more "popular" recommended books that students should find illuminating.
Class sessions will follow a lecture-discussion format. Students must therefore come prepared to discuss in each class. This means reading assigned material before class!
Small groups of students will undertake projects in which they will explore some "real-world" phenomenon using insights from both psychology and economics (e.g., pricing strategies in supermarkets, incentive systems in firms, and so on). Projects will be presented in class at the end of the term. There will also be a short examination.

Week 1: January 7. Introduction
Coombs, C. H., Dawes, R. M., & Tversky, A. (1970). Mathematical Psychology: An Elementary Introduction. Englewood Cliffs, NJ: Prentice-Hall. Read Chapter 5, "Individual decision making", pp. 113-129.

Week 2: January 12 & 14. Models of choice
Thaler, R. H. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1, 39-60.
Tversky, A., & Kahneman, D. (1986). Rational choice and the framing of decisions. Journal of Business, 59(4), Part 2, S251-S278.
Hertwig, R., Barron, G., Weber, E. U., & Erev, I. (2004). Decisions from experience and the effect of rare events in risky choice. Psychological Science, 15 (8), 534-539.
Einhorn, H. J., & Hogarth, R. M. (1986). Decision making under ambiguity. Journal of Business, 59(4), Part 2, S225-S250.

Week 3: January 19 & 21. Probabilistic thinking
Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1131.
Tversky, A., & Kahneman, D. (1993). Extensional versus intuitive reasoning: The conjunction fallacy in probability judgment. Psychological Review, 90 (4), 293-215.
Einhorn, H. J., & Hogarth, R. M. (1978). Confidence in judgment: Persistence of the illusion of validity. Psychological Review, 85, 395-416.
Moore, D. A., & Healy, P. J. (2008). The trouble with overconfidence. Psychological Review, 115 (2), 502-517.

Week 4: January 26 & 28. Decision strategies
Dijksterhuis, A., Bos, M. W., Nordgren, L. F., & van Baaren, R. B. (2006). On making the right choice: The deliberation-without-attention effect. Science, 311, 1005-1007.
Wilson, T. D., & Schooler, J. W. (1991). Thinking too much: Introspection can reduce the quality of preferences and decisions. Journal of Personality and Social Psychology, 60 (2), 181-192.
Gigerenzer, G., & Goldstein, D. G. (1996). Reasoning the fast and frugal way: Models of bounded rationality. Psychological Review, 103, 650-670.
Loewenstein, G., & Thaler, R. H. (1989). Intertemporal choice. Journal of Economic Perspectives, 3 (4), 181-193.

Week 5: February 2 & 4. Emotions
Bechara, A., Damasio, H., Tranel, D., & Damasio, A. R. (1997). Deciding advantageously before knowing the advantageous strategy. Science, 275, 1293-1295.
Hogarth, R. M. et al. (in press). Emotion and reason in everyday risk perception, Journal of Behavioral Decision Making.
Slovic, P., Finucane, M., Peters, E., & MacGregor, D. (2002). The affect heuristic. In T. Gilovich, D. Griffin, & D. Kahneman (Eds.). Intuitive judgment: Heuristics and biases. New York: Cambridge University Press.
Hsee, C. K., & Rottenstreich, Y. (2004). Music, pandas, and muggers: On the affective psychology of value. Journal of Experimental Psychology: General, 133 (1), 23-30.

Week 6: February 9 & 11. Applications
Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35, 124-140.
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). The endowment effect, loss aversion, and status quo bias. Journal of Economic Perspectives, 5 (1), 193-206.
Benartzi, S., & Thaler, R. H. (1995). Myopic loss aversion and the equity premium puzzle. Quarterly Journal of Economics, 110 (1), 73-92.

Week 7: February 16 & 18. Applications
Benartzi, S., & Thaler, R. H. (2007). Heuristics and biases in retirement savings behavior. Journal of Economic Perspectives, 21 (3), 81-104.
Camerer, C. F., Babcock, L., Loewenstein, G., & Thaler, R. H. (1997). Labor supply of New York City cab drivers: One day at a time. The Quarterly Journal of Economics, 112 (2), 407-441.
Odean, T. (1998). Are investors reluctant to realize their losses? Journal of Finance, 53(5), 1775-1798.
Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12, 183-206.

Week 8: February 23 & 25. Happiness
Diener, E., & Seligman, M. E. P. (2004). Beyond money: Towards an economy of well-being. Psychological Science in the Public Interest, 5 (1), 1-31.
Kahneman, D., Krueger, A, B., Schkade, D. A., Schwartz, N., & Stone, A. A. (2004). A survey method of characterizing daily life experience: The day reconstruction method. Science, 306 (5702), 1776-1780.
Kahneman, D., & and Alan B. Krueger, A. B. (2006). Developments in the measurement of subjective well-being. Journal of Economic Perspectives, 20 (1), 3-24.

Week 9: March 2 & 4. Class presentations

Week 10: March 9 & 11. Class presentations and conclusions

Recommended books
Ariely, D. (2008) Predictably Irrational: The hidden forces that shape our decisions. New York, NY: Harper Collins.
Thaler, R. H. & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. New Haven, CT: Yale University Press.
Makridakis, S., Hogarth, R.M., & Gaba, A. (2009). Dance with Chance: Making Luck Work for You. Oxford, UK: Oneworld Publications.

Student evaluation will be assessed as follows
Class participation: 10%
Class project presentation: 10%
Group project: 50%
Final examination: 20%