Introduction to Behavioural Economics
Behavioural Economics and Public Policy, a third year undergraduate option for Economics students, began today. I will post a little about aspects of it throughout this term and I am interested in corresponding with other people running courses like this or discussing aspects of the material with people.
The introductory lecture introduced myself and the course materials. In terms of substantive content, the lecture gave a definition and brief overview of Behavioural Economics. Ancient and Medieval Philosophy in general did not make distinctions between the disciplines of Economics and Psychology. Economics as a distinct discipline has many roots, with origins around the late 1700s with works such as Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations” being one clear point of departure. Psychology made its clear departure from philosophy in the late 1800s. At this time, there was a great deal of work at the intersection of the emerging fields of economics and psychology, with a substantial amount of time devoted to integrated psychophysics into utility theory. For the most part, this project did not influence the mainstream economics that dominated the 20th century. Economics developed along the lines of an axiomatic science like physics whereas psychology progressed along an empirical route heavily influenced by experimental design and biology. While the integration of Economics and Psychology attains its most recognisable expression in the work of Herbert Simon and of Kahneman, Tversky and colleagues; it should be pointed out that several streams of research existed throughout the 20th century that sought to bring psychological realism to Economic models including the work associated with George Katona which yielded, inter alia, the consumer sentiment analyses that we are mostly all familiar with. Following the pioneering judgement studies of Kahneman and Tversky and their development of prospect theory, research into behavioural economics flourished in the late 20th century. Kahneman cites Richard Thaler in his Nobel address as being chiefly responsible for the integreation into economics, with Thaler’s work being responsible for an increasing awareness of the limitation of rationality assumptions in Economics. Increasingly, behavioural economics has moved from examining anomolies in the standard accounts of decision making toward developing first-principles models based on arguably more realistic assumptions. Modern leaders in the field include Ernst Fehr, David Laibson and Matthew Rabin who’s work will appear in the course in various ways.