Classic Economic theory assumes that all of the decisions we make are sensible, or “rational.” In this module we compare how people should behave (especially around economic decisions) versus how people do behave. We focus on actual decision making that appears to defy rational choice axioms. This module aims to introduce students to Classic Economic and Behavioural Economic concepts. In particular, we will we consider how predictions of economic behaviour differ when several assumptions that simplify economic models are replaced with psychologically realistic assumptions, based on empirical observations from the lab and from the world. We will pay special attention to the way in which these modified assumptions affect consumers, markets and public policy. The concepts introduced in this module can be applied in their business career and provide a foundation for future modules.
Introduction to Economics and Behavioural Economics:
Scarcity, choice and opportunity cost, the differences between Microeconomics, Macroeconomics and Behavioural Economics, the fundamental questions of economic analysis – resource allocation, efficiency, prospect theory and heuristics.
Demand, Supply and Market Equilibrium:
Demand and consumers, supply and producers, market equilibrium and the price mechanism, price controls, Price elasticity of demand.
Beyond the classical economic model of consumer choice
Decision making / Consumer Purchasing Decisions: Endowment effects, Self-Control, Transaction Utility, Consumer Pricing, Mental Accounting, Status Quo Bias and Default Options, The Winner’s Curse and Auction Behaviour, Impact of markets, Learning, Incentives, Memory, Attention, Categorization and the thinking process.
Information and Uncertainty
Biases in probabilistic judgment, Correlation and Causation Error, Probability Weighting, Relative Probabilities, Framing, Bracketing Decisions, Representativeness and the Availability Heuristic, Overconfidence, Belief Perseverance and Confirmation Bias, Loss Aversion, Prospect Theory and Decision under Risk or Uncertainty.
Time Discounting and the Long and Short Run
Disagreeing with Ourselves: Projection and Hindsight Biases, Naïve Procrastination, Committing and Un-committing.
Social Preferences
Selfishness and Altruism, Fairness and Psychological Games, Trust, Reciprocity and Public Goods Contributions.
| Module Content & Assessment | |
|---|---|
| Assessment Breakdown | % |
| Other Assessment(s) | 30 |
| Formal Examination | 70 |