Behavioral Economics

Course Director: Magnus Johannesson

Purpose
The course is intended to enhance students' knowledge and skills in behavioral economics; both in terms of understanding how human behavior typically deviates from the conventional "economic man" model and in terms of designing and interpreting economic experiments.

Content
Most economic reasoning is still based on three simplifying assumptions: that economic agents are perfectly rational, possess unlimited self control, and are only interested in their own material payoff. Behavioral economics studies how one can relax these assumptions. The course will cover a range of topics in behavioral economics, including prospect theory, self control, and social preferences. There will be a focus on methods and how experiments can be used to analyze economic behavior and test theories. A term paper proposing a experimental design is also an important part of the course.

Format and Structure
The course is structured around a series of lectures on key areas of behavioral economics and a "term paper". The term paper and the associated seminars are an important part of the course.

In the term paper, students will write a paper about a proposed design of an experiment. This should be written as a complete academic paper, but without a results section (a possible structure of the paper is: Introduction, Previous Research, Design of Experiment, Hypotheses and Tests, Discussion, References). The proposed experimental designs will be discussed in seminars towards the end of the course.

Course Administrator: jessica.kihlman@hhs.se

The intended learning outcomes are: to be able to design and interpret economic experiments; to understand the main theoretical models in behavioral economics; and to gain insights from the results of economic experiments in a number of key areas of economics.

Economics corresponding to the compulsory parts of the BSc level at the Stockholm School of Economics.

**Lecture 1. Introduction **

• Thaler RH. Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization 1980;1:39-60.
• Thaler RH. From cashews to nudges: the evolution of behavioral economics. American Economic Review 2018, 108, 1265-1287.
• Scientific background on the Prize in Economic Sciences 2017, Royal Swedish Academy of Sciences.

** Lecture 2. Experimental methodology**

• Benjamin et al. Redefine statistical significance. Nature Human Behaviour 2018, vol. 2, pp- 6-10.
• Harrison GW, List JA. Field experiments. Journal of Economic Literature 2004, vol. 42, pp. 1009-1055.
• Gelman A, Loken E. The garden of forking paths: why multiple comparisons can be a problem, even when there is no “fishing expedition” or “p-hacking” and the research hypothesis was posited ahead of time. Working paper, 2013.
• Nosek BA, Ebersole CR, DeHaven AC, Mellor DT. The preregistration revolution. PNAS 2018, published online.
• Simmons JP, Nelson LD, Simonsohn U. False-positive psychology: undisclosed flexibility in data collection and analysis allows presenting anything as significant. Psychological Science 2011, vol. 22, pp. 1359-1366.

** Lecture 3. The dictator game and generosity **

• Hoffman E, McCabe K, Shachat K, Smith V. Social-distance and other-regarding behavior in dictator games. American Economic Review 1996, vol. 86, pp. 653-660.
• Jacobsson F, Johannesson M, Borgquist L. Is altruism paternalistic? Economic Journal 2007, vol. 117, pp. 761-781.
• Landry CE, Lange A, List JA, Price MK, Rupp NG. Toward an understanding of the economics of charity: evidence from a field experiment. Quarterly Journal of Economics 2006, vol. 121, pp. 747-782.

** Lecture 4. The ultimatum game, fairness and social preferences**

• Charness G, Rabin M. Understanding social preferences with simple tests. Quarterly Journal of Economics 2002, vol. 117, pp. 817-869.
• Dana J, Cain DM, Dawes RM. What you don’t know won’t hurt me: costly (but quiet) exit in dictator games. Organizational Behavior and Human Decision Processes 2006, vol. 100, pp. 193-201.
• Fehr E, Schmidt KM. A theory of fairness, competition, and cooperation. Quarterly Journal of Economics 1999, vol. 114, pp. 817-868.
• Henrich J, Boyd R, Bowles S, Camerer C, Fehr E, Gintis H, McElreath R. In search of homo economicus: behavioral experiments in 15 small-scale societies. American Economic Review Papers and Proceedings 2001, vol. 91, pp. 73-78.

** Lecture 5. The trust game and reciprocity**

• Berg J, Dickhaut J, McCabe K. Trust, reciprocity and social history. Games and Economic Behavior 1995, vol. 10, 122-142.
• Cox JC. How to identify trust and reciprocity. Games and Economic Behavior 2004, vol. 46, pp. 260-281.
• Fehr E, Gächter S. Fairness and retaliation: the economics of reciprocity. Journal of Economic Perspectives 2000, vol. 14 (3), pp. 159-181.
• Gneezy U, List JA. Putting behavioral economics to work: testing for gift exchange in labor markets using field experiments. Econometrica 2006, vol. 74, pp. 1365-1384.
• Kube S, Marechal MA, Puppe C. The currency of reciprocity: gift exchange in the workplace. American Economic Review 2012, vol. 102, pp. 1644-1662.

** Lecture 6. The public goods game, cooperation and punishment**

• Fehr E, Gächter S. Cooperation and punishment in public goods experiments. American Economic Review 2000, vol. 90, pp. 980-994.
• Fischbacher U, Gächter S, Fehr E. Are people conditionally cooperative? Evidence from a public goods experiment. Economics Letters 2001, vol. 71, pp. 397-404.
• Kosfeld M, Rustagi D. Leader punishment and cooperation in groups: experimental field evidence from commons management in Ethiopia. American Economic Review 2015, vol. 105, pp. 747-783.
• Masclet D, Noussair C, Tucker S, Villeval M-C. Monetary and nonmonetary punishment in the voluntary contributions mechanism. American Economic Review 2003, vol. 93, pp. 366-380.
• Rustagi D, Engel S, Kosfeld M. Conditional cooperation and costly monitoring explain success in forest commons management. Science 2010, vol. 330, pp. 961-965.

** Lecture 7. The “control game”, monetary incentives and crowding out **

• Ariely D, Bracha A, Meier S. Doing good or doing well? Image motivation and monetary incentives in behaving prosocially. American Economic Review 2009, vol. 99, pp. 544-555.
• Falk A, Kosfeld M. The hidden costs of control. American Economic Review 2006, vol. 96, pp. 1611-1630.
• Fehr E, List JA. The hidden costs and returns of incentives: trust and trustworthiness among CEOs. Journal of the European Economic Association 2004, vol. 2, pp. 743-771.
• Gneezy U, Rustichini A. A fine is a price. Journal of Legal Studies 2000, vol. 29, pp. 1-17.
• Mellström C, Johannesson M. Crowding out in blood donation: was Titmuss right? Journal of the European Economic Association 2008, vol. 6, pp. 845-863.

** Lecture 8. Communication and deception in games**

• Charness G, Dufwenberg M. Promises and partnership. Econometrica 2006, vol. 74, pp. 1579-1601.
• Ellingsen T, Johannesson M. Promises, threats and fairness. Economic Journal 2004, vol. 114, pp. 397-420.
• Ellingsen T, Johannesson M, Lilja J, Zetterqvist H. Trust and truth. Economic Journal 2009, vol. 119, pp. 252-276.
• Gneezy U. Deception: the role of consequences. American Economic Review 2005, vol. 95, pp. 384-394.
• Valley K, Thompson L, Gibbons R, Bazerman MH. How communication improves efficiency in bargaining games. Games and Economic Behavior 2002, vol. 38, pp. 127-155.

** Lecture 9. Competition and gender differences**

• Buser T, Niederle M, Ooterbeek H. Gender, competitiveness, and career choices. Quarterly Journal of Economics 2014, vol. 129, pp. 1409-1447.
• Croson R, Gneezy U. Gender differences in preferences. Journal of Economic Literature 2009, vol. 47, pp. 448-474.
• Gneezy U, Leonard KL, List JA. Gender differences in competition: evidence from a matrilineal and a patriarchial society. Econometrica 2009, vol. 77, pp. 1637-1664.
• Niederle M, Vesterlund L. Do women shy away from competition? Do men compete too much? Quarterly Journal of Economics 2007, vol. 122, pp. 1067-1101.

** Lecture 10. Bounded rationality: iterated reasoning**

• Bosch-Doménech A, Montalvo JG, Nagel R, Satorra A. One, two, (three), infinity,…: newspaper and lab beauty-contest experiments. American Economic Review 2002, vol. 92, pp. 1687-1701.
• Camerer CF, Ho TH, Chong JK. A cognitive hierarchy model of games. Quarterly Journal of Economics 2004, vol. 119, pp. 861-898.
• Nagel R. Unraveling in guessing games: an experimental study. American Economic Review 1995, vol. 85, pp. 1313-1326.

** Lecture 11. Prospect theory and loss aversion**

• Benartzi S, Thaler RH. Myopic loss aversion and the equity premium puzzle. Quarterly Journal of Economics 1995, vol. 110, pp. 73-92.
• List JA. Neoclassical theory versus prospect theory: evidence from the marketplace. Econometrica 2004, vol. 72, pp. 615-625.
• Rabin M, Thaler RH. Anomalies: risk aversion. Journal of Economic Perspectives 2001, vol. 15 (1), pp. 219-232.
• Odean T. Are investors reluctant to realize their losses? Journal of Finance 1998, vol. 53, pp. 1775-1798.
• Tversky A, Kahneman D. Advances in prospect theory: cumulative representation of uncertainty. Journal of Risk and Uncertainty 1992, vol. 5, pp. 297-323.

** Lecture 12. Self-control**

• Charness G, Gneezy U. Incentives to exercise. Econometrica 2009, vol. 77, pp. 909-931.
• Laibson D. Golden eggs and hyperbolic discounting. Quarterly Journal of Economics 1997, vol. 112, pp. 443-477.
• Thaler RH, Benartzi S. Save more tomorrow: using behavioral economics to increase employee saving. Journal of Political Economy 2004, vol. 112, pp. S164-S187.
• Volpp KG, et al. A randomized, controlled trial of financial incentives for smoking cessation. New England Journal of Medicine 2009, vol. 360, pp. 699-709.
• Volpp KG, et al. Financial incentive-based approaches for weight loss: a randomized trial. Journal of the American Medical Association 2008, vol. 300, pp. 2631-2637.

** Lecture 13. Reproducibility of Experimental Research **

• Camerer CF, et al. Evaluating replicability of laboratory experiments in economics. Science 2016, vol. 351, pp. 1433-1436.
• Camerer CF, et al. Evaluating the replicability of social science experiments in Nature and Science between 2010 and 2015. Nature Human Behaviour 2018, vol. 2, pp. 637-644.
• Dreber A, et al. Using prediction markets to estimate the reproducibility of scientific research. PNAS 2015, vol. 112, pp. 15343-15347.
• Dreber A, Johannesson M. A framework for evaluating reproducibility and replicability in economics. Economic Inquiry 2024, published inline.
• Open Science Collaboration. Estimating the reproducibility of psychological science. Science 2015, vol. 349, aac4716.

Examination/grading: written exam (60%) and term paper (40%).

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