Behavioural Economics for Psychologists
Course programme
Instructor – Alexis Belianin, PhD
ICEF NRU HSE, 26 Shabolovka str. Office 3427
phone (+7495) 772 9590 *26085
mail: icef-research@hse.ru
Goals and objectives
The course aims at getting the students familiar with the main approaches and problems of
contemporary behavioural economics – a relatively new, interdisciplinary area which stems from the
basic paradigm of economic science (rational behaviour), extending it towards a greater descriptive
accuracy in the light of the achievements of contemporary psychology. Topics studied within this
discipline cover various aspects of individual and interactive decision making in laboratory and real
settings, and are closely connected with experimental studies at all levels – from cognitive
neuroscience to field experiments.
At the end of the course, students are expected to understand the basic principles of economic analysis
of human behaviour, be familiar with the key theoretical and experimental papers in the area, and be
able to analyse individual behaviour in the light of this literature in various laboratory and real-life
circumstances.
Prerequisites
 working knowledge of English as necessary to communicate and read scientific literature
 working knowledge of mathematics (calculus and probability theory)
 knowledge of the basics of cognitive psychology and economic theory (microeconomics)
Grading
Home assignment – 20%
Course project – 20%
Classroom experiments – 10%
Final exam – 50%
Pass grade is 34%. Excellent grade is 70% and above.
Literature
A single text that is most relevant for the course is
Wilkonson, Nick and Klaes, Matthias. (2012). An introduction to Behavioural Economics. Palgrave
Macmillan
Most of the material is contained in this text, although in a somewhat different form. Students are
required to follow the lectures, consult the slides and references contained therein, as well as read
original research literature, much of it is contained in the following sources:
Kahneman, D., Slovic, P., & Tversky, A., eds. (1982). Judgment Under Uncertainty: Heuristics and
Biases. New York: Cambridge University Press. (рус.пер. Принятие решений в условиях
неопределенности: Правила и предубеждения. — Харьков: Гуманитарный центр, 2005. — 632
с. — ISBN 966-8324-14-5)
Kahneman, D. & Tversky, A., eds. (2000). Choices, values and frames. Cambridge: Cambridge
University Press.
Kahneman, D. & Tversky, A. (1984) Rational choice, values and frames // American Psychologist., vol.
39, No. 4, pp. 341-350. (рус.пер. Канеман Д., Тверски А. Рациональный выбор, ценности и
фреймы // Психологический журнал. — 2003. — Т. 24. — № 4. — С. 31−42.
Kahneman D. Thinking fast and slow. Farrar, Straus and Giroux, 2011 (рус.пер. Канеман Д. Думай
медленно… Решай быстро. — М.: АСТ, 2013. — 625 с.)
Camerer C., Loewenstein G., Rabin M., eds. (2004). Advances in Behavioural Economics. Princeton:
Princeton University Press.
Plous, Scott (1993). The Psychology of Judgment and Decision Making. New York: McGraw Hill.
Gigerenzer, Gerd, and Selten, Reinhard, eds. (2002) Bounded Rationality: The Adaptive Toolbox.
Cambridge: Cambridge University Press.
Kagel J. and Roth A. (1995) Handbook of experimental economics. Princeton: Princeton University
Press, 1995.
Camerer, Colin. (2003) Behavioural Game Theory: Experiments in Strategic Interaction. Princeton
University Press.
Plott C. and Smith V. (2008) Handbook of experimental economics results, Vol.1. Amsterdam: Elsevier.
The following collection of electronic resources contains many materials relevant for the course:
http://danariely.com/ – Dan Ariely, professor at Duke University, author of many bestsellers on
behavioural sciences, notably Predictably Irrational (2007) and The Upside of Rationality (2010) (both
translated into Russian).
http://timharford.com/ - Tim Harford, aka The undercover economist – columnist of Financial Times,
BBC and popular behavioural scientist, author of many books and papers, including The Logic of Life
(2008).
http://www.freakonomics.com/ - website of a famous book by Stephen Dubner (journalist) and Steven
Lewitt (economist at Chicago), also translated into Russan, and containing many examples of
applications of economics to various aspects of human life.
http://fastandfrugal.com – Website of the Max Planck institute on behavioural and bounded rationality,
held by Gerd Gigerenzer and his colleagues.
http://epee.hse.ru – website of the laboratory for experimental and behavioural economics of HSE,
contains a few insights into the subject-matter of the discipline and some hopefully helpful references.
Course contents
Compulsory literature is marked (**).
0. Introduction
** Frey, B. S. & Benz, M. (2002). From Imperialism to Inspiration: A Survey of Economics and
Psychology. In: John B. Davis, Alain Marciano, and Jochen Runde (Editors). Elgar Companion to
Economics and Philosophy. Northampton, Massachusetts: Edward Elgar Publishing Limited, 2004 http://www.bsfrey.ch/articles/410_04.pdf.
(See also Frey B.S and Stutzer A. Economics and psychology: from imperialistic to inspired
economics, Philosophie Economique, 2001/2, no.4, p.5-22, http://www.bsfrey.ch/articles/362_01.pdf.
** Rabin M. (1998) Psychology and economics. Journal of Economic Literature, v.36, no.1, p.11-46.
http://www.nyu.edu/econ/user/bisina/rabin_survey.pdf – Not the most recent, but still very accurate
survey from one of the key academics in the discipline.
Earl P. (1990) Economics and psychology: a survey. Economic Journal, v.100, no 402, p.718-755.
http://teaching.ust.hk/~mark329y/EconPsy/Economics%20and%20psychology%20%20A%20survey.pdf – a more psychological, but also a bit outdated survey :(
1. Rationality
Psychology and economics of behaviour. Economic way of thinking. Rational decision making:
standard vs behavioural approach. Axioms of rational preferences. Generalized binary (preference)
relations. Choice functions, revealed preferences.
** Канеман Д., Тверски А. Рациональный выбор, ценности и фреймы // Психологический
журнал. – 2003. – Т. 24. - № 4. - С. 31-42. http://selfmoney.narod.ru/kanem.htm
** Simon H.A. (1978) Rationality as the process and as a product of thought. American Economic
Review, v.68, no.2, p.1-16. (рус.пер.: THESIS, 1993, №3)
http://ecsocman.hse.ru/data/629/779/1217/3_1_2simon.pdf
Sen A.K. (1987) Rational behaviour. In: J.Eatwell, M.Milgate, P.Newman eds. The New Palgrave. A
Dictionary of Economics. London: Macmillan.
Daniel Kahneman. Maps of Bounded Rationality: Psychology for Behavioral Economics. The
American Economic Review, Vol. 93, No. 5 (Dec., 2003), pp. 1449-1475
** Белянин А.В. Нобелевская премия за чувство реальности. Вопросы экономики, 2003, №1.
2. Heuristics and biases
Heurisitcs and biases paradigm: examples, explanations, experimental evidence. Reasons behind
heuristics: are they always erroneous? Implications of heuristics and biases for decision analaysis
Kahneman, Daniel & Shane Frederick (2002). "Representativeness Revisited: Attribute Substitution in
Intuitive Judgment". In Thomas Gilovich, Dale Griffin, Daniel Kahneman. Heuristics and Biases: The
Psychology of Intuitive Judgment. Cambridge: Cambridge University Press. pp. 49–81.
Tversky, A. & Kahneman, D. 1986. Rational choice and the framing of decisions. Journal of Business.
v. 59, S251-S278.
** Tversky, A. & Kahneman, D. 1974. Judgment under uncertainty: Heuristics and biases. Science.
185(4157), p.1124-1131. http://psiexp.ss.uci.edu/research/teaching/Tversky_Kahneman_1974.pdf
Tversky, A. & Kahneman, D. 1973. Availability: A heuristic for judging frequency and probability.
Cognitive Psychology. 5(2). 207-232.
Gerd Gigerenzer, Peter M. Todd, and the ABC Research Group (1999). Simple Heuristics That Make
Us Smart. Oxford, UK, Oxford University Press.
Fischhoff B. and Beyth R. ‘I knew it would happen’ - remembered probabilities of once-future things.
Organizational Behaviour and Human Decision Processes, 1975, v.13, p.1-16.
Grether D.M. and Plott C.R. (1979) Economic theory of choice and the preference reversal
phenomenon. American Economic Review, v.69, no.5, p.623-638.
Arkes, Hal; Blumer, Catherine (1985). "The Psychology of Sunk Cost". Organizational Behavior and
Human Decision Process 35: 124–140.
Read, Daniel, and George Loewenstein. 1995. "Diversification Bias: Explaining the Discrepancy in
Variety Seeking between Combined and Separated Choices." Journal of Experimental Psychology:
Applied 1:34-49
Langer, E. J. (1975). The illusion of control. Journal of Personality and Social Psychology, 32(2), 311328.
Moore, D. A., & Healy, P. J. (2008). The trouble with overconfidence. Psychological Review, 115(2),
502-517.
3. Choice under risk and uncertainty
Representation of preferences under risk and uncertainty: historical and contemporary perspective.
Expected utility theory: axioms and experimental tests. Derivation of utility function. Generalizations:
prospect theory and its properties. Empirical results.
Allais M. (1953) Le comportement de l’homme rationnel devant le risque: critique des postulates et des
axioms de l’ecole americaine. Econometrica, v.21, no.4, p.503-546. (рус.пер.THESIS 1994, #5)
Farquhar P.H. (1984) Utility assessment methods. Management Science, v.30, no.11, p.1283-1300.
** Kahneman D. and Tversky A. (1979) Prospect theory: an analysis of decision under risk.
Econometrica, v.47, p.263-291.
http://www.hss.caltech.edu/~camerer/Ec101/ProspectTheory.pdf
** Schoemaker, P. J. H., “The Expected Utility Model: Its Variants, Purposes, Evidence and
Limitations,” Journal of Economic Literature, Vol. 20, June 1982, pp. 529-563. ((рус.яз.:
http://igiti.hse.ru/data/409/313/1234/5_1_2Schoe.pdf)
Starmer, Chris. "Developments in Non-Expected Utility Theory: The Hunt for a Descriptive
Theory of Choice under Risk," Journal of Economic Literature, Vol. XXXVIII (June 2000) pp.
332–382.
4. Intertemporal preferences
Dynamic decision making: principles of analysis and dynamic (in)consistency. Exponential and
hyperbolic discounting. The multiple selves model and its explanatory power. Methods of measurement
of time preferences. Contraversies and limitations.
Bikhchandani S., D. Hirshleifer, I. Welch (1992) A theory of fads, fashion, custom, and cultural-change
as informational cascades, Journal of Political Economy, Vol.100, No.5, 992-1026.
Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters,
Elsevier, vol. 8(3), pages 201-207
Strotz, R. H., “Myopia and Inconsistency in Dynamic Utility Maximization,”Review of Economic
Studies 23 (1956), 165–80.
Mischel, W., Ebbeson, E.B. and Zeiss, A.R., 1972. Cognitive and attentional mechanisms in delay of
gratification. Journal of Personality and Social Psychology 21, pp. 204–218.
Rubinstein A. “Economics and Psychology”? The Case of Hyperbolic Discounting. International
Economic Review, 2003, Volume 44, Issue 4, p.1207–1216.
** Frederick, Shane, George Loewenstein, and Ted O'Donoghue. 2002. "Time Discounting and Time
Preference: A Critical Review." Journal of Economic Literature, 40(2): 351-401.
http://www.cmu.edu/dietrich/sds/docs/loewenstein/TimeDiscounting.pdf
5. Behavioural game theory
Main concepts of game theory, Nash equilibrium, dominant strategies, extensive form games.
Examples: social dilemmas, coordination, ultimatum game etc. Divergence of experimental evidence
and theoretical predictions. Explanations and behavioural theories.
Andreoni, J. and Miller, J. (1993) ‘Rational Cooperation in the Finitely Repeated Prisoner’s Dilemma:
Experimental Evidence’, Economic Journal, 103, 570–85.
Babcock, Linda and Loewenstein, George (1997) ‘Explaining Bargaining Impasses: The Role of Selfserving Biases’, Journal of Economic Perspectives, 11, 109–26.
Babcock, L., Loewenstein, G., Issacharoff, S. and Camerer, C. F. (1995) ‘Biased Judgments of Fairness
in Bargaining’, American Economic Review, 85, 1337–43.
Bush, R. and Mosteller, F. (1955) Stochastic Models for Learning, New York, John Wiley.
Camerer, C. F. (2003) Behavioral Game Theory: Experiments on Strategic Interaction,
Princeton, NJ: Princeton University Press.
Camerer, C. F. and Lovallo, D. (1999) ‘Overconfidence and Excess Entry: An Experimental Approach’,
American Economic Review, 89, 306–18.
Costa-Gomes, M., Crawford, V. and Broseta, B. (2001) ‘Cognition and Behavior in Normal-form
Games: An Experimental Study’, Econometrica, 69, 1193–235.
Crawford, V. (1997) ‘Theory and Experiment in the Analysis of Strategic Interactions’, in D. Kreps and
K. Wallis (eds), Advances in Economics and Econometrics: Theory and Applications, Seventh World
Congress, Vol. i, Cambridge University Press.
Erev, I. and Roth, A. (1998) ‘Predicting How People Play Games: Reinforcement Learning in
Experimental Games with Unique, Mixed-strategy Equilibria’, The American Economic Review, 88,
848–81.
** Kahneman, D. (1988) ‘Experimental Economics: A Psychological Perspective’, in R. Tietz, W.
Albers and R. Selten (eds), Bounded Rational Behavior in Experimental Games and Markets, New
York, Springer-Verlag, 11–18., http://cemi.ehess.fr/docannexe.php?id=1951
Kaufman, H. and Becker, G. M. (1961) ‘The Empirical Determination of Game-theoretical Strategies’,
Journal of Experimental Psychology, 61, 462–8.
McKelvey, R. D. and Palfrey, T. R. (1992) ‘An Experimental Study of the Centipede Game’,
Econometrica, 60, 803–36.
Nagel, R., Bosch-Domenech, A., Satorra, A. and Garcia-Montalvo, J. (2002) ‘One, Two, (Three),
Infinity: Newspaper and Lab Beauty-contest Experiments’, American Economic Review.
Schelling, T. (1960) The Strategy of Conflict, Cambridge Mass Harvard University Press.
Selten, R. (1978) ‘The Chain Store Paradox’, Theory and Decision, 9, 127–59.
Smith, V. L., Suchanek, G. and Williams, A. (1988) ‘Bubbles, Crashes and Endogeneous Expectations
in Experimental Spot Asset Markets’, Econometrica, 56, 1119–51.
Van Huyck, J., Cook, J. and Battalio, R. (1997) ‘Adaptive Behavior and Coordination Failure’, Journal
of Economic Behavior and Organization, 32, 483–503.
** K.Binmore and A.Shaked 'Experimental economics: what next?', JEBO 2010 and its three rejoinders
in the same volume, all available at http://www.wiwi.uni-bonn.de/shaked/rhetoric/
6. Experimental methods
Experimental methods: problems, hypotheses, statistics, properties of experimental design with
application to research project
Siegel S. and Castellan N.John (1988). Nonparametric Statistics for The Behavioral Sciences. McGraw
Hill.
Angrist, J.D., and Pischke J.-S. (2009). Mostly Harmless Econometrics: An Empiricist's Companion.
Princeton University Press.