Experimental Methods and Behavioural Economics**
A.Y. 2024/2025
Learning objectives
The aim of this course is first to provide a grounding knowldege in the area of decision under risk adopting the classic Expected Utility model. Using experimental evidence showing how this model may miss important features of observed choices, the course will then present alternative models that have been developed to reconcile the theory with the empirical evidence. The course will then cover intertemporal decisions using a similar approach. Finally, the course will describe some well-known biases in decision making that can have significant effects in shaping economic decisions.
Expected learning outcomes
At the end of the course the students are expected to have acquired the tools necessary to:
· understand the existing literature on decision under risk and on the most relevant topics in behavioral economics;
· think and formalize decisions under risk using Expected Utility, Rank Dependent Utility and Prospect Theory, knowing the relative strengths and weaknesses of the different models;
· think and formalize intertemporal decisions using Discounted Utility and (Quasi) Hyperbolic Discounting knowing the relative strength and weaknesses of the different models;
· know how economic decisions are affected by biases known in the Behavioral Economics literature.
· understand the existing literature on decision under risk and on the most relevant topics in behavioral economics;
· think and formalize decisions under risk using Expected Utility, Rank Dependent Utility and Prospect Theory, knowing the relative strengths and weaknesses of the different models;
· think and formalize intertemporal decisions using Discounted Utility and (Quasi) Hyperbolic Discounting knowing the relative strength and weaknesses of the different models;
· know how economic decisions are affected by biases known in the Behavioral Economics literature.
Lesson period: Second trimester
Assessment methods: Esame
Assessment result: voto verbalizzato in trentesimi
Single course
This course can be attended as a single course.
Course syllabus and organization
Single session
Responsible
Lesson period
Second trimester
Course syllabus
The purpose of the course is to provide students with knowledge about behavioral and experimental economics. The main objective of this course is to review the main results obtained in behavioral and experimental economics. Another objective is after critically discussing the findings, developing own research ideas and learning how to design own experiments.
The lectures will explore how experimental work has been used to study markets and economic institutions, and discuss seminal and recent experimental developments on how people respond to risk, make choices over time, and interact with others. We will then do an overview of how experiments have been used to test game theory of strategic interactions and how people learn about their environment and the actions of others. The last sections of the class will briefly review experimental work on incentives and ethics (cheating behavior).
Outline of the topics in the class:
What is experimental economics?
Methodology of experimental economics;
Basic findings in individual decision making: heuristics and biases, prospect theory, endowment effect;
Risk preferences;
Time preferences;
Social preferences;
Unethical behavior;
Markets;
Incentives and intrinsic motivation;
Gender differences and overlaps;
New trends in behavioral economics.
The lectures will explore how experimental work has been used to study markets and economic institutions, and discuss seminal and recent experimental developments on how people respond to risk, make choices over time, and interact with others. We will then do an overview of how experiments have been used to test game theory of strategic interactions and how people learn about their environment and the actions of others. The last sections of the class will briefly review experimental work on incentives and ethics (cheating behavior).
Outline of the topics in the class:
What is experimental economics?
Methodology of experimental economics;
Basic findings in individual decision making: heuristics and biases, prospect theory, endowment effect;
Risk preferences;
Time preferences;
Social preferences;
Unethical behavior;
Markets;
Incentives and intrinsic motivation;
Gender differences and overlaps;
New trends in behavioral economics.
Prerequisites for admission
While there are no formal requirements for the class, students should be comfortable with basic economic principles such as supply and demand, utility functions, and choice under risk. Familiarity with certain theoretical constructs is required in order to understand why experiments are used to study them.
Teaching methods
Students are expected to interact, comment and challenge the presenter. The class is organized into modules, with each module composed of one to two classes focused on one of the topics in behavioral and experimental economics. The classes in a module will introduce the seminal papers in the literature, recent developments on the topic, and some modules will feature student presentations on the topic.
Teaching Resources
The class materials consist of the slides provided in the class.
Additional reading list is the following:
The Handbook of Experimental Economics, J. H. Kagel and A. E. Roth, Princeton University Press (1997).
Frederick, S., Loewenstein, G. and O'Donoghue, T. (2002), Time discounting and time preference: A critical review. Journal of Economic Literature. 40, 351-401.
Fehr E. and S. Gachter, Cooperation and punishment in public goods experiments (2001). American Economic review, 90, 980-94
Nagel R., Unraveling in Guessing Games: An Experimental Study (1995). American Economic Review, 85, 1313-26.
Palacios-Huerta, I. and Volij, O. (2009), Field Centipedes, American Economic Review 99, 1619-1635
Rubinstein, A. (2007). Instinctive and cognitive reasoning: A study of response times. Economic Journal, 117 (2007), 1243-1259
Additional reading list is the following:
The Handbook of Experimental Economics, J. H. Kagel and A. E. Roth, Princeton University Press (1997).
Frederick, S., Loewenstein, G. and O'Donoghue, T. (2002), Time discounting and time preference: A critical review. Journal of Economic Literature. 40, 351-401.
Fehr E. and S. Gachter, Cooperation and punishment in public goods experiments (2001). American Economic review, 90, 980-94
Nagel R., Unraveling in Guessing Games: An Experimental Study (1995). American Economic Review, 85, 1313-26.
Palacios-Huerta, I. and Volij, O. (2009), Field Centipedes, American Economic Review 99, 1619-1635
Rubinstein, A. (2007). Instinctive and cognitive reasoning: A study of response times. Economic Journal, 117 (2007), 1243-1259
Assessment methods and Criteria
The final grade will be determined by the final written exam (60%) and two verbal presentations (40% (20% each)).
Educational website(s)
Professor(s)