Behavioral Economics!

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This podcast provides an overview of behavioral economics. Behavioral economics incorporates descriptively accurate assumptions about cognitive ability, social interaction, moral motivation, and emotional responses into economic modeling and explores the implications of this for human behavior and economic outcomes. These assumptions are often motivated by empirical findings in psychology, sociology and related disciplines, as well as the field of experimental economics. Behavioral economics seeks to generate theoretical insights, make more accurate predictions of field phenomena, and suggest welfare improving policies. Main topics: Behavioral decision theory. Time inconsistency and self-control. Social preferences and fairness.

Episodes

  1. 11/08/2024

    Experimental economics & endowment effect

    The episode explores the concept of the endowment effect, a behavioral economics phenomenon where individuals value something more when they own it compared to when they don't. The document begins by highlighting the Nobel Prize winning work of Kahneman and Smith, whose research established laboratory experiments as a tool for economic analysis. The episode then discusses Vernon Smith's market experiments and Plott's 1983 study on externalities, both of which illustrate the importance of controlled environments for testing economic theory. The episode then dives into the endowment effect, contrasting the initial research showing its presence with more recent work that challenges its existence, specifically by Plott and Zeiler, who argue that the endowment effect may be an artifact of experimental design. The episode then examines research that suggests the endowment effect may be a consequence of learning and expectations. The episode ends by discussing the challenges of replicating research findings in behavioral economics, using the example of the replication crisis in psychology.

    Experimental economics & endowment effect

  2. 11/04/2024

    Heuristics and biases from a psychological perspective

    We explore the field of behavioral economics, focusing on the concept of heuristics and biases in human judgment and decision-making. The episode begins by outlining the historical development of behavioral economics as a field that blends insights from psychology, neuroscience, and economics. It then explores how cognitive psychologists in the 1970s compared the human mind to a computer, leading to the development of the heuristics and biases tradition by researchers like Daniel Kahneman and Amos Tversky. The episode examines several key heuristics, including representativeness, availability, anchoring and adjustment, and affect heuristics, highlighting how these mental shortcuts can lead to systematic errors in judgment. The episode then delves into the concept of natural frequencies, arguing that our cognitive systems are better equipped to process frequencies than probabilities, which can explain why humans often fall prey to biases like the base-rate fallacy. The episode concludes by discussing the limitations of laboratory experiments in capturing the complexities of real-world decision-making and emphasizing the need to consider how interactions between cognitive processes and the environment can influence judgments.

    Heuristics and biases from a psychological perspective

  3. 11/01/2024

    Expected utility and prospect theories

    The episode is introducing the concepts of expected utility theory (EU) and prospect theory, key frameworks for understanding decision-making under uncertainty. The lecture explores how people evaluate potential outcomes, particularly focusing on the role of reference points, decision weights, and risk aversion. It contrasts the assumptions of expected utility theory, which assumes rational decision-making and asset integration, with prospect theory's consideration of psychological biases such as loss aversion and the reflection effect. The episode then examines the independence axiom, a crucial component of expected utility theory, and presents evidence suggesting that people often violate this axiom, supporting prospect theory's claim that decision weights are not always aligned with probabilities. Finally, we introduce the "editing phase" of prospect theory, which involves simplifying and restructuring choices, and discusses how these cognitive processes can influence decision-making.

    Expected utility and prospect theories
  • 3 Episodes

About

This podcast provides an overview of behavioral economics. Behavioral economics incorporates descriptively accurate assumptions about cognitive ability, social interaction, moral motivation, and emotional responses into economic modeling and explores the implications of this for human behavior and economic outcomes. These assumptions are often motivated by empirical findings in psychology, sociology and related disciplines, as well as the field of experimental economics. Behavioral economics seeks to generate theoretical insights, make more accurate predictions of field phenomena, and suggest welfare improving policies. Main topics: Behavioral decision theory. Time inconsistency and self-control. Social preferences and fairness.

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