Starred readings (*) are required. Other readings are provided for students interested in exploring the topic more deeply.
[Class 1 cancelled due to Blizzard.]
Class 2. Part 1: Introduction (January 29: David Laibson)
• Overview of psychology and economics
• Positive, Normative, and Prescriptive Economics
• Modeling
Gabaix, Xavier and David Laibson (2008) " The Seven Properties of Good Models" in eds Andrew Caplin and Andrew Schotter The Methodologies of Modern Economics: Foundations of Positive and Normative Economics , Oxford University Press.
Loewenstein, George, “The Fall and Rise of Psychological Explanations in the Economics of Intertemporal Choice.” In Choice Over Time , pp. 3–34.
Mullainathan, Sendhil and Richard Thaler. “ Behavioral Economics.” NBER Working paper 7948, October 2000.
Russell, Thomas and Richard Thaler, “The Relevance of Quasi-Rationality in Competitive Markets.” In Quasi Rational Economics, Ch. 12, pp. 239–257
Thaler, Richard. “ Introduction.” In The Winner's Curse , Ch. 1, pp. 1–5.
Thaler, Richard. "The Psychology of Choice and the Assumptions of Economics.” In Quasi Rational Economics, Ch. 7, pp.137–166.
Thaler, Richard. “The Psychology and Economics Conference Handbook.” In Quasi Rational Economics , Ch. 9, pp. 189–198.
Zeckhauser, Richard. “ Comments: Behavioral versus Rational Economics: What You See is What You Conquer.” Journal of Business , 1986, 59:4, part 2, S435–S449.
Class 2. Part 2: Decisions (January 29: Tomasz Strzalecki)
● decision as choice between alternatives ● preference and utility maximization ● Independence of Irrelevant Alternatives (IIA) ● decision making as a cognitive burden: choice overload, decision fatigue * Baumeister and Tierney, “Willpower”, (2011) Chapter 4 (see Journal Article and Book Chapter section)
Danziger, Shai, Jonathan Levav, and Liora Avnaim-Pesso "Extraneous factors in judicial decisions" Proceedings of the National Academy of Sciences 108(17), April 26 2011
Kahneman, “Thinking Fast and Slow”, Introduction, Chapters 1–2.
Iyengar and Lepper (2000), "W hen Choice Is Demotivating: Can One Desire Too Much of a Good Thing?," Journal of Personality and Social Psychology, 79(6), 995-1006
Mullainathan, S., & Shafir, E. (2013). S carcity: Why having too little means so much. Macmillan.
Rubinstein, Ariel, Lecture Notes in Microeconomic Theory, Chapters 1-3. available h ere
Scheibehenne, B., Greifeneder, R., & Todd, P. M. (2010). Can there ever be too many options? A meta‐analytic review of choice overload. Journal of Consumer Research, 37(3), 409425.
Class 3. System I/ System II (February 3: Tomasz Strzalecki)
● the two systems ● cognitive reflection ● priming ● anchoring ● availability Kahneman, “Thinking Fast and Slow”, Introduction, Chapters 3–5, 9, 11–12
Kahneman, Daniel and Amos Tversky. “Choices, Values, and Frames.” In Choices, Values and Frames," Ch. 1, pp. 1–16.
Frederic, Shane, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, 19 (4), 25-42.
Class 4. Reference Dependence (February 5: Tomasz Strzalecki)
● Status Quo Bias ● Endowment Effect ● Reference Dependence ● Loss Aversion Kahneman, Knetch, and Thaler, “The Endowment Effect, Loss Aversion, and Status Quo Bias” in The Winner's Curse Ch. 6, pp. 63–78.
* Kahneman, Daniel and Amos Tversky. "Loss Aversion in Riskless Choice: A Reference-Dependent Model.” In Choices, Values and Frames, Ch. 7, pp. 143–158.
Kahneman, Daniel and Amos Tversky. "Rational Choice and the Framing of Decisions.” In Choices, Values and Frames, Ch. 12, pp. 209–223.
Camerer, Colin, Linda Babcock, George Loewenstein, and Thaler, Richard. “Labor Supply of New York City Cab Drivers: One Day at a Time.” In Choices, Values and Frames, Ch. 20, pp. 356–370.
Samuelson, William, and Richard Zeckhauser. " Status quo bias in decision making." Journal of risk and uncertainty 1.1 (1988): 7-59.
[Class 5. Canceled due to the blizzard]
Class 6. Context Dependence (February 12: Tomasz Strzalecki)
● menu effects: decoy effect, compromise effect, salience ● how things are presented matters: framing, preference reversals ● consideration sets ● reason-based choice
Ariely, Loewenstein, and Prelec, (2003), "'Coherent Arbitrariness': Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 73-105, February.
* Bordalo, Pedro; Gennaioli, Nicola; Shleifer, Andrei; (2013), "S alience and Consumer Choice” ,Journal of Political Economy, vol 121, pp. 803 - 843
Doyle, J. R., D. J. O, Connor, G. M. Reynolds, and P. A. Bottomley (1999): “The Robustness of the Asymmetrically Dominated Effect: Buying Frames, Phantom Alternatives, and In-Store Purchases,” Psychology and Marketing, 16(3), 225–243.
Fudenberg, D., Levine, D. K., & Maniadis, Z. (2012). On the robustness of anchoring effects in WTP and WTA experiments. A merican Economic Journal: Microeconomics, 4(2), 131145.
* H uber, Payne, and Puto, (1982) "Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis." Journal of Consumer Research, 9 (1), 90-98.
* Shafir, Simonson, and Tversky, (1993) " Reason-based choice,"Cognition, 49, pp.11-36
Thaler, Richard. “Preference Reversals.” In The Winner's Curse, Ch. 7, pp. 79–91. Tversky, Amos and Itamar Simonson. “Context Dependent Preferences.” In Choices, Values and Frames, Ch. 29, pp. 518–527.
Tversky and Kahneman, "Rational Choice and the Framing of Decisions," In Choices, Values and Frames, Ch. 12, pp. 209-223.
Tversky and Simonson, (1993), "Context-dependent preferences", In Choices, Values and Frames, Ch. 29, pp. 518-527.
Class 7. Randomness (February 17: Tomasz Strzalecki)
● Probability Theory ● Risk Aversion ● Expected Value vs Expected Utility ● Diversification, Insurance, Investments, Portfolios
Gilboa (2010), Chapter 4
Varian (2010). Intermediate microeconomics: a modern approach, Chapter 12, New York: WW Norton.
Rubinstein, Ariel, Lecture Notes in Microeconomic Theory, Chapters 8-9. available h ere
Class 8. Prospect Theory: Probability Weighting (February 19: Tomasz Strzalecki)
● Allais Paradox ● Common ratio effect ● Probability Weighting Function ● Optimism/Pessimism ● Gains and Losses: the fourfold pattern ● The Cumulative Model ● Applications
Barseghyan, L., Molinari, F., O'Donoghue, T., & Teitelbaum, J. C. (2013). The nature of risk preferences: Evidence from insurance choices. A merican Economic Review, 103(6), 24992529.
Barseghyan, L., Molinari, F., O'Donoghue, T., & Teitelbaum, J. C. (2013). Distinguishing Probability Weighting from Risk Misperceptions in Field Data.The American Economic Review, 103(3), 580585.
Chew, S. H., E. Karni, and Z. Safra (1987): “Risk aversion in the theory of expected utility with rank dependent probabilities,” Journal of Economic theory, 42(2), 370–381. FehrDuda, H., & Epper, T. (2012). Probability and risk: Foundations and economic implications of probabilitydependent risk preferences. A nnu. Rev. Econ., 4(1), 567593.
Green, J. R., and B. Jullien (1988): “Ordinal independence in nonlinear utility theory,” Journal of Risk and Uncertainty, 1(4), 355–387.
* Kahneman, D., & Tversky, A. (1979). P rospect theory: An analysis of decision under risk. E conometrica, 263291.
Neilson, W., & Stowe, J. (2002). A further examination of cumulative prospect theory parameterizations. Journal of risk and uncertainty, 24(1), 3146.
Quiggin, J. (1982): “A theory of anticipated utility,” Journal of Economic Behavior & Organization, 3(4), 323–343.
Tversky, A., and D. Kahneman (1992): “Advances in prospect theory: Cu- mulative representation of uncertainty,” Journal of Risk and uncertainty, 5(4), 297–323.
Wakker, P., and A. Tversky (1993): “An axiomatization of cumulative prospect theory,” Journal of risk and uncertainty, 7(2), 147–175.
Prelec, D. (1998). The probability weighting function. E conometrica, 497527.
Yaari, M. E. (1987): “The dual theory of choice under risk,” E conometrica, pp. 95–115.
Class 9. Prospect Theory: Loss Aversion in Risky Choices (February 24: Tomasz Strzalecki)
● local risk neutrality ● Rabin Paradox ● loss aversion and diminishing sensitivity ● expectations as references
Abeler, J., Falk, A., Goette, L., & Huffman, D. (2011). Reference points and effort provision. The American Economic Review, 470492.
Ericson, K. M. M., & Fuster, A. (2010). Expectations as endowments: Evidence on referencedependent preferences from exchange and valuation experiments.A vailable at SSRN 1505121.
Genesove, D., & Mayer, C. (2001). Loss aversion and seller behavior: Evidence from the housing market (No. w8143). National bureau of economic research. Heffetz, O., & List, J. A. (2011). Is the endowment effect a reference effect?(No. w16715). National Bureau of Economic Research.
Kőszegi, B., & Rabin, M. (2006). A model of referencedependent preferences.The Quarterly Journal of Economics, 11331165.
Kőszegi, B., & Rabin, M. (2007). Referencedependent risk attitudes. The American Economic Review, 10471073.
Kőszegi, B., & Rabin, M. (2009). Referencedependent consumption plans. The American Economic Review, 99(3), 909936.
McGraw, A. P., Mellers, B. A., & Tetlock, P. E. (2005). Expectations and emotions of Olympic athletes. Journal of Experimental Social Psychology,41(4), 438446.
Medvec, V. H., Madey, S. F., & Gilovich, T. (1995). When less is more: counterfactual thinking and satisfaction among Olympic medalists. Journal of personality and social psychology, 69(4), 603.
Rabin, Matthew, 2000. "Risk Aversion and Expected-utility Theory: A Calibration Theorem," Econometrica, 68 (5): 1281-1292.
* Kahneman, D., & Tversky, A. (1979). P rospect theory: An analysis of decision under risk. E conometrica, 263291.
Shefrin, H. and M. Statman, (1985) “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence”, Journal of Finance, Vol. XL, No. 3.
Class 10. Ambiguity (February 26: Tomasz Strzalecki)
● taking bets and speculating ● the Sure Thing Principle ● the Keynes and Ellsberg Paradoxes ● source preferences and maxmin
Abdellaoui, Mohammed, Aurélien Baillon, Laetitia Placido, & Peter P. Wakker (2011) "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation," American Economic Review 101, 695-723 Camerer, C., & Weber, M. (1992). Recent developments in modeling preferences: Uncertainty and ambiguity. Journal of risk and uncertainty, 5(4), 325370.
Curley, S. P., & Yates, J. F. (1989). An empirical evaluation of descriptive models of ambiguity reactions in choice situations. Journal of Mathematical Psychology, 33(4), 397427.
Ellsberg, Daniel (1961). "Risk, Ambiguity, and the Savage Axioms". Quarterly Journal of Economics 75 (4): 643–669.
Fox, Craig R. and Tversky, Amos (1995). "Ambiguity Aversion and Comparative Ignorance". Quarterly Journal of Economics 110 (3): 585–603
Heath, C., & Tversky, A. (1991). Preference and belief: Ambiguity and competence in choice under uncertainty. Journal of risk and uncertainty, 4(1), 528.
* G ilboa (2010), Chapter 5
Class 11. Learning: the Bayesian model (March 3: Tomasz Strzalecki)
● Learning ● Conditional Probability ● Conditional Expectations, Law of Iterated Expectations ● Bayes Rule, Dynamic Consistency ● Grain of Truth
* Gilboa (2010), Chapter 3 (or any textbook on probability that you might have)
Class 12. Learning: evidence to the contrary (March 5: Tomasz Strzalecki)
● Base rate fallacies: base rate neglect, confirmation bias ● Sample size fallacies: law of small numbers, gambler’s fallacy, hot hand fallacy, non-belief in the law of large numbers, non-belief in the central limit theorem ● Representativeness
Bar-Hillel, M., Neter, E. (1986). How alike is it? versus how likely is it?: A disjunction fallacy in probability judgments, Journal of Personality and Social Psychology', 65, 1119-1131
Genaioli, N. and A. Shleifer. "What Comes to Mind" Quarterly Journal of Economics, November, 2010. * Kahneman, Daniel and Amos Tversky, 1983. “ Extensional vs. Intuitive Reasoning: The Conjunction Fallacy in Probability Judgment,” Psychological Review, 90(4), 293-315
Kahneman, (2011), “Thinking, Fast and Slow,” Chapters 13–16
Mullainathan, S. (2002). Thinking through categories. N BER working paper.
Rabin, M. (2002). Inference by believers in the law of small numbers. Q uarterly Journal of Economics 117(3), 775816.
Rabin, M. and J. Schrag (1999), "First Impressions Matter: A Model of Confirmatory Bias,"Quarterly Journal of Economics 114(1), 37-82.
Rabin, M., & Vayanos, D. (2010). The gambler's and hothand fallacies: Theory and applications. The Review of Economic Studies, 77(2), 730778.
* Tversky, Amos and Daniel Kahneman. “Belief in the Law of Small Numbers” In Judgment under Uncertainty: Heuristics and Biases, Ch. 2, pp. 23–31.
Tversky, Amos and Daniel Kahneman, “Evidential Impact of Base Rates” In Judgment under Uncertainty: Heuristics and Biases, Ch. 10, pp. 153–162.
Tversky, Amos and Daniel Kahneman. “ Introduction” In Judgment under Uncertainty: Heuristics and Biases, Ch. 1, pp. 3–22.
Tversky, Amos and Daniel Kahneman. “ Availability: A Heuristic for Judging Frequency and Probability.” In Judgment under Uncertainty: Heuristics and Biases, Ch. 11, pp. 163–178.
Class 13. Attention (March 10: Tomasz Strzalecki)
● limited attention ● attention allocation as a margin of choice
Fox and Tversky (1998) "A Belief-Based Account of Decision Under Uncertainty" In Choices, Values and Frames, Ch. 6, pp 118-142
Mack, A. (2003) “Inattentional Blindness: Looking Without Seeing” Current Directions in Psychological Science 12(5), 180-184
Wilson, TD; Wheatley, Meyers, J; Gilbert, D; and D Axsom (2000) “Focalism: A Source of Durability Bias in Affective Forecasting” Journal of Personality and Social Psychology 78(5), 821-836.
Class 14. Midterm (March 12). Covers Classes 2-12
Spring Break: March 16-20
Class 15. Behavioral Game Theory (March 24: David Laibson)
• Beauty contest
• Winner's curse
• Buying a firm
• Adverse Selection
• Option value
• Closing a plant
• Mental accounts
• Learning
* Camerer, Colin, 2001. Ch. 1, " Introduction." Behavioral game theory: Experiments on Behavioral Interaction, forthcoming.
Camerer, Colin. “Individual Decision Making.” In Handbook of Experimental Economics (Al Roth editor), Princeton University Press: Princeton , N. J., pp. 587–704.
Camerer, Colin and Dan Lovallo. “Overconfidence and Excess Entry: An Experimental Approach.” In Choices, Values and Frames, Ch. 23, pp. 414–423.
Camerer, Colin and Teck H. Ho, “Learning in games.” In C. Plott and V. Smith (eds.) Handbook of Experimental Economics Results, in press. Camerer, Colin F., Teck H. Ho, and Juin-Kuan Chong. “Sophisticated EWA Learning and Strategic Teaching in Repeated Games.'' Unpublished paper, April 2000.
Dennett, Daniel. “ Cognitive Wheels: The Frame Problem of AI.” In W. Pylyshyn (Ed.) , The Robot's Dilemma: The Frame Problem in Artificial Intelligence, Ablex Publishing Corporation: Norwood , N.J. , 1987, pp. 41–64.
Erev, Ido and Alvin E. Roth. “On the role of reinforcement learning in experimental games: The cognitive game theory approach.” In D. Budescu, I. Erev and R. Zwick (eds.) Games and Human Behavior: Essays in Honor of Amnon Rapoport, Mahwah , N.J. : Lawrence Erlbaum Associates, Publishers, pp. 53–77.
Erev, Ido, Yoella Bereby-Meyer, and Alvin E. Roth, " The effect of adding a constant to all payoffs: Experimental investigation, and a reinforcement learning model with self-adjusting speed of learning.” Journal of Economic Behavior and Organization , 39, 1 May, 1999 , 111–128.
Erev, Ido and A.E. Roth. " Predicting how people play games: Reinforcement learning in experimental games with unique, mixed strategy equilibria.” American Economic Review , 88(4), September 1998, 848–881.
Gabaix, Xavier and David Laibson. “The Frame Problem: A New Problem for Economics.” In I. Brocas and J. Carillo (eds.) Collected Papers on Psychology and Economics , Oxford University Press, 2001 .
Xavier Gabaix, David Laibson, Guillermo Moloche and Stephen Weinberg (2006). “ Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model,” American Economic Review , vol. 96 (4), pp. 1043-1068.
Gabaix, Xavier and David Laibson. “ A Boundedly Rational Decision Algorithm.” American Economic Review, 90 (2), May 2000, 433–38.
Ho, Teck, Colin Camerer, and Keith Weigelt, “ Iterated dominance and iterated best-response in experimental ‘p-beauty contests'.” American Economic Review, 88, September 1998, 947–69.
* Nagel, Rosemarie. “ Unraveling in Guessing Games: An Experimental Study.” American Economic Review, 85(5), December 1995, 1313–26.
Roth, Alvin E. and Ido Erev. “ Learning in Extensive-Form Games: Experimental Data and Simple Dynamic Models in the Intermediate Term.” Games and Economic Behavior, 8, 1995, 164–212.
Shafir, Eldar, Peter Diamond and Amos Tversky. “Money Illusion.” In Choices, Values and Frames, Ch. 19, pp. 335–355.
Shafir, Eldar, Itamar Simonson, and Amos Tversky. “Reason Based Choice.” In Choices, Values and Frames, Ch. 34, pp. 597–619. Thaler, Richard. “ The Winner's Curse.” In The Winner's Curse, Ch. 5, pp. 50–62.
Thaler, Richard. “Preference Reversals.” In The Winner's Curse, Ch. 7, pp. 79–91.
Tversky, Amos and Itamar Simonson. “Context Dependent Preferences.” In Choices, Values and Frames, Ch. 29, pp. 518–527.
Class 16. Behavioral Game Theory Continued (March 26: David Laibson)
(see additional readings from previous lecture)
* Thaler, Richard. “ The Winner's Curse.” In The Winner's Curse, Ch. 5, pp. 50–62.
Class 17. Intertemporal Choice (March 31: David Laibson)
• Exponential Discounting
• Hyperbolic discounting (present bias)
• Sophistication, naivite, and partial naivite
• Dynamic consistency
• Dynamic inconsistency
• Commitment
• Procrastination
• Household credit and savings
Ainslie, George and Nick Haslam. "Hyperbolic Discounting.” In Choice Over Time, Ch. 3, pp. 57–92.
Akerlof, George (1991). “ Procrastination and Obedience,” The Richard T. Ely Lecture, American Economic Review, Papers and Proceedings, 81(2): 1-19, May. Angeletos, George-Marios, David Laibson, Andrea Repetto, Jeremy Tobacman, and Stephen Weinberg (2001). " The Hyperbolic Buffer Stock Model: Calibration, Simulation, and Empirical Evaluation.” Journal of Economic Perspectives,15(3), Summer, 47-68.
Ariely, Dan and Klaus Wertenbroch (2002). “ Procrastination, Deadlines, and Performance: Self-Control by Precommitment,” Psychological Science, 13(3): 219-224, May.
Ashraf, Nava, Dean Karlan, and Wesley Yin. " Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines."Quarterly Journal of Economics 121, no. 2 (May 2006): 635–672.
Beshears, John, James J. Choi, Christopher Harris, David Laibson, Brigitte C. Madrian, and Jung Sakong.“ Self Control and Liquidity: How to Design a Commitment Contract.” August 2013.
Carroll, Gabriel D., James Choi, David Laibson, Brigitte C. Madrian, and Andrew Metrick. 2009. "Optimal Defaults and Active Decisions." Quarterly Journal of Economics 124(4): 1639-1674.
* Chabris, Christopher David Laibson, and Jonathan Schuldt " Intertemporal Choice," in Palgrave Dictionary of Economics.
Chabris, Christopher F., David Laibson, Carrie L. Morris, Jonathon P. Schuldt, Dmitry Taubinsky (2008). “ Individual Laboratory-Measured Discount Rates Predict Field Behavior.”Journal of Risk and Uncertainty, 37(2/3): 237-269, December.
Della Vigna, Stefano, and Ulrike Malmendier (2006).“ Paying Not to Go to the Gym.” American Economic Review,96(3): 694-719, June.
Duflo, Esther, Michael Kremer, and Jonathan Robinson (2010).“N udging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya.” Working paper.
Harris, Christopher and David Laibson (2013).“ Instantaneous Gratification.” Quarterly Journal of Economics.
Herrnstein, Richard J. and Dražen Prelec. "Melioration.” In Choice Over Time, Ch. 10, pp. 235–264.
Kaur, Supreet, Michael Kremer, and Sendhil Mullainathan (2010). “ Self-Control and the Development of Work Arrangements,” American Economic Review 100(2): 624-628, May.
Kaur, Supreet, Michael Kremer, and Sendhil Mullainathan (2010). “ Self-Control at Work: Evidence from a Field Experiment,” Working paper.
Kirby, Kris. N. (1997). " Bidding on the future: Evidence against normative discounting of delayed rewards." Journal of Experimental Psychology: General , 126(1), 54–70. Kirby, Kris. N. and N. N. Marakovic. (1996). "D elay-discounting probabilistic rewards: Rates decrease as amounts increase." Psychonomic Bulletin & Review , 3(1), 100–104.
Kirby, Kris. N. and N. N. Marakovic. (1995). " Modeling myopic decisions: Evidence for hyperbolic delay-discounting within subjects and amounts." Organizational Behavior and Human Decision Processes , 64(1), 22–30.
Kirby, Kris. N. and Richard. J. Herrnstein. (1995). " Preference reversals due to myopic discounting of delayed reward." Psychological Science , 6(2), 83–89.
Laibson, David. “ Golden Eggs and Hyperbolic Discounting.” Quarterly Journal of Economics , 112(2), May 1997, 443–77.
Laibson, David, Andrea Repetto, and Jeremy Tobacman. “A Debt Puzzle.” NBER working paper 7879, 2000.
Laibson, David, Andrea Repetto, and Jeremy Tobacman (2008). “ Estimating Discount Functions with Consumption Choices over the Lifecycle.” NBER Working Paper No. 13314.
Loewenstein, George and Dražen Prelec. “Preferences for Sequences of Outcomes.” In Choices, Values and Frames, Ch. 32, pp. 565–577.
Loewenstein, George and Dražen Prelec. " Anomalies in intertemporal: Evidence and an interpretation.” Quarterly Journal of Economics , May 1992, 573–597.
Loewenstein, George and Dražen Prelec. (1993). " Preferences over outcome sequences." Psychological Review , 100(1), 91–108.
Mischel, Walter, Yuichi Shoda, and Monica L. Rodriguez (1989).“ Delay of Gratification in Children.” Science, 244(4907): 933-938, May.
* O’Donoghue, Ted and Matthew Rabin (1999). “ Doing It Now or Later.” American Economic Review, 89(1): 103–124, March.
O'Donoghue, Ted and Matthew Rabin. “ Incentives for Procrastinators.” Quarterly Journal of Economics , 114(3), 769–816, August 1999.
Phelps, E.S. and R.A. Pollak (1968). “On Second-Best National Saving and Game-Equilibrium Growth.” Review of Economic Studies, 35(2): 185-199.
Read, Daniel, and Barbara van Leeuwen(1998). “ Predicting Hunger: The Effects of Appetite and Delay on Choice.” Organizational Behavior and Human Decision Processes, 76(2): 189-205, November. Read, Daniel, George Loewenstein, and Shobana Kalyanaraman (1999). “ Mixing Virtue and Vice: Combining the Immediacy Effect and the Diversification Heuristic.” Journal of Behavioral Decision Making12(4): 257-273.
Schelling, Thomas C. (1992). “ Self-Command: A New Discipline.” Choice Over Time, George Loewenstein and Jon Elster eds., Ch. 7, pp. 167–176.
Shefrin, Hersh M. and Thaler, Richard. "Mental Accounting, Saving, and Self-Control.” In Choice Over Time , Ch. 12, pp. 287–330.
Simonson, Itamar. “The Effect of Purchase Quantity and Timing on Variety-Seeking.” In Choices, Values and Frames, Ch. 41, pp. 735–757.
Thaler, Richard. "Some Empirical Evidence on Dynamic Inconsistency.” In Quasi Rational Economics , Ch. 6, pp. 127–136.
Thaler, Richard. “Intemporal Choice.” In The Winner's Curse, Ch. 8, pp. 92–106.
Class 18. Intertemporal Choice (April 2: David Laibson)
(see previous lecture’s reading list)
* Angeletos, George-Marios, David Laibson, Andrea Repetto, Jeremy Tobacman, and Stephen Weinberg (2001). “ The Hyperbolic Buffer Stock Model: Calibration, Simulation, and Empirical Evaluation .” Journal of Economic Perspectives,15(3), Summer, 47-68.
Class 19. Biosocial Science (April 7: David Laibson)
● Neuroimaging ● fMRI ● Prefrontal Cortex ● Mesolimbic Dopamine System ● Multiple systems hypothesis ● Genoeconomics ● Single-nucleotide polymorphism (SNP) ● Genome-wide association study (GWAS)
Albrecht, Konstanze, David I. Laibson, Matthias Sutter, Kirsten G. Volz, and D. Yves von Cramon (2011). "What is for me is not for you: brain correlates of intertemporal choice for self and other."S ocial Cognitive and Affective Neuroscience, 6(2): 218-225.
Benjamin, Daniel J., Sebastian A. Brown, and Jesse M. Shapiro (2006). “ Who is ‘Behavioral’? Cognitive Ability and Anomalous Preferences.” Mimeo, May.
Benjamin, Daniel J., Christopher F. Chabris, Edward L. Glaeser, Vilmundur Gudnason, Tamara B. Harris, David I. Laibson, Lenore Launer, and Shaun Purcell (2007). “Genoeconomics.” In Weinstein, Maxine, James W. Vaupel, and Kenneth W. Wachter (eds.), Biosocial Surveys. Committee on Population, Division of Behavioral and Social Sciences and Education. Washington, D.C.: The National Academies Press.
Benjamin, Daniel J., David Cesarini, Matthijs J.H.M. van der Loos, Christopher T. Dawes, Philipp D. Koellinger, Patrik K.E. Magnusson, Christopher F. Chabris, Dalton Conley, David I. Laibson, Magnus Johannesson, and Peter M. Visscher (2012). “The Genetic Architecture of Economic and Political Preferences.”Proceedings of the National Academy of Sciences. doi:10.1073/pnas.1120666109
* Benjamin, Daniel, David Cesarini, Christopher F. Chabris, Edward L. Glaeser, David I. Laibson, Vilmundur Guðnason, Tamara B. Harris, Lenore J. Launer, Shaun Purcell, Albert Vernon Smith, Magnus Johannesson, Jonathan P. Beauchamp, Nicholas A. Christakis, Craig Atwood, Benjamin Hebert, Jeremy Freese, Robert M. Hauser, Taissa S. Hauser, Patrik Magnusson, Alexander Grankvist, Christina Hultman, Paul Lichtenstein (2012). "The Promises and Pitfalls of Genoeconomics," Annual Review of Economics, 4: 627-662.
Bernheim, B. Douglas, and Antonio Rangel(2004).“ Addiction and Cue-Triggered Decision Processes.” American Economic Review, 94(5): 1558-1590, December.
Berns, Gregory, David Laibson, and George Loewenstein (2007) " Intertemporal choice – toward an integrative framework," Trends in Cognitive Sciences , 11(11), pp. 482-8.
Camerer, Colin, George Loewenstein, and Drazen Prelec,“ Neuroeconomics: How Neuroscience can Inform Economics.” Journal of Economic Literature .
* Camerer, Colin, Jonathan Cohen, Ernst Fehr, Paul Glimcher, David Laibson, “N euroeconomics” forthcoming in the Handbook of Experimental Economics, Jonathan Kagel and Alvin Roth editors.
Chabris, Christopher F., David Laibson, Carrie L. Morris, Jonathon P. Schuldt, and Dmitry Taubinsky (2008).“M easuring intertemporal preferences using response times” NBER Working Paper No. 14353.
Chabris, Christopher F., James J. Lee, Daniel J. Benjamin, Jonathan P. Beauchamp, Edward L. Glaeser, Gregoire Borst, Steven Pinker, and David I. Laibson (forthcoming). “Why Is It Hard to Find Genes that are Associated with Social Science Traits? Theoretical and Empirical Considerations.” American Journal of Public Health. Chabris, Christopher F., Benjamin M. Hebert, Daniel J. Benjamin, Jonathan P. Beauchamp, David Cesarini, Matthijs J.H.M. van der Loos, Magnus Johannesson, Patrik K.E. Magnusson, Paul Lichtenstein, Craig S. Atwood, Jeremy Freese, Taissa S. Hauser, Robert M. Hauser, Nicholas A. Christakis, and David Laibson (2012). “Most Published Genetic Associations with General Intelligence Are Probably False Positives.”Psychological Science. doi:10.1177/0956797611435528 Supporting Online Material here.
Chib, Vikram S., Antonio Rangel, Shinsuke Shimojo and John P. O’Doherty (2009). “E vidence for a Common Representation of Decision Values for Dissimilar Goods in Human Ventromedial Prefrontal Cortex.” Journal of Neuroscience,29(39): 12315-12320, September.
De Quervain, Dominique J. F., Urs Fischbacher, Valerie Treyer, Melanie Schellhammer, Ulrich Schnyder, Alfred Buck, and Ernst Fehr (2004).“ The Neural Basis of Altruistic Punishment.” Science, 305(5688): 1254-1258, August.
Hare, Todd A., Colin F. Camerer, and Antonio Rangel (2009). “ Self-Control in Decision-Making Involves Modulation of the vmPFC Valuation System.” Science, 324(5927): 646-648, May.
Kahneman, Daniel (2003). “ Maps of Bounded Rationality: Psychology for Behavioral Economics.” American Economic Review, 93(5): 1449-1475, December.
Knoch, Daria, Alvaro Pascual-Leone, Kasper Meyer, Valerie Treyer, and Ernst Fehr,(2006). “ Diminishing Reciprocal Fairness by Disrupting the Right Prefrontal Cortex.” Science, 314(5800): 829-832, November.
Laibson, David (2001). “ A Cue-Theory of Consumption.” Quarterly Journal of Economics, 66(1): 81–119, February.
Loewenstein, George (1996). “ Out of Control: Visceral Influences on Behavior.”Organizational Behavior and Human Decision Processes, 65(3): 272–292, March.
McClure, Sam, David Laibson, George Loewenstein, and Jonathan D. Cohen (2004). “ Separate Neural Systems Value Immediate and Delayed Monetary Rewards.” Science, 306(5695): 503-507, October.
McClure, Sam, Keith Ericson, David Laibson, George Loewenstein, and Jonathan Cohen (2007).“ Time Discounting for Primary Rewards.” Journal of Neuroscience, 27(21): 5796–5804, May.
Rangel, Antonio, Colin Camerer and P. Read Montague (2008). “ A framework for studying the neurobiology of value-based decision making.” Nature Reviews Neuroscience 9(7): 545-556, July.
Rangel, Antonio, and Todd Hare (2010). “ Neural computations associated with goal-directed choice.” Current Opinion in Neurobiology, 20(2): 262-270, April.
Rietveld, Cornelius A., Sarah E. Medland, Jaime Derringer, Jian Yang, Tõnu Esko, Nicolas W. Martin, Harm-Jan Westra, Konstantin Shakhbazov, …, Dalton Conley, George Davey-Smith, Lude Franke, Patrick J. F. Groenen, Albert Hofman, Magnus Johannesson, Sharon L.R. Kardia, Robert F. Krueger, David Laibson, Nicholas G. Martin, Michelle N. Meyer, Danielle Posthuma, A. Roy Thurik, Nicholas J. Timpson, André G. Uitterlinden, Cornelia M. van Duijn, Peter M. Visscher, Daniel J. Benjamin, David Cesarini, Philipp D. Koellinger (2013). “GWAS of 126,559 individuals identifies genetic variants associated with educational attainment.”S cience, Published Online May 30. DOI: 10.1126/science.1235488. FAQh ere.
Rietveld, Cornelius A., David Cesarini, Daniel J. Benjamin, Philipp D. Koellinger, Jan-Emmanuel De Neve, Henning Tiemeier, Magnus Johannesson, Patrik K.E. Magnusson, Nancy L. Pedersen, Robert F. Krueger, Meike Bartels (2013).“Molecular Genetics and Subjective Well-Being.”Proceedings of the National Academy of Sciences. doi: 10.1073/pnas.1222171110
Sanfey, Alan G.,James K. Rilling, Jessica A. Aronson, Leigh E. Nystrom, and Jonathan D. Cohen (2003).“ The Neural Basis of Economic Decision-Making in the Ultimatum Game.” Science, 300(5626): 1755-1758, June. van der Loos, Matthijs J.H.M., Cornelius A. Rietveld, Niina Eklund, Philipp D. Koellinger, David Cesarini, Fernando Rivadeneira, Gonçalo R. Abecasis, Georgina A. Ankra-Badu, Sebastian E. Baumeister, Daniel J. Benjamin, Reiner Biffar, Stefan Blankenberg, Dorret I. Boomsma, David Cesarini, …, A. Roy Thurik (2013). “The molecular genetic architecture of self-employment.”PLoS ONE, 8(4): e60542.
Class 20. Household Finance (April 9: David Laibson)
● Framing ● Mental Accounts ● Defaults ● Nudges ● Choice Architecture Allcott, Hunt (2011). “Social Norms and Energy Conservation.” Journal of Public Economics, Vol. 95, No 9-10 (October), pages 1982-1095.
Bertrand, Karlan, Mullainahtan, Shafir and Zinman, “ What’s Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment,” Quarterly Journal of Economics, 125(1), February 2010.
* Beshears, John, James Choi, David Laibson, and Brigitte Madrian (2008). "The Importance of Default Options for Retirement Saving Outcomes: Evidence from the United States" In Stephen J. Kay and Tapen Sinha, editors, Lessons from Pension Reform in the Americas , pp. 59-87. Oxford : Oxford University Press. Carroll, Gabriel, Choi, James, David Laibson, Brigitte C. Madrian, and Andrew Metrick, “ Optimal Defaults and Active Decisions,” 2009 Quarterly Journal of Economics
Chetty, Raj, Adam Looney, and Kory Kroft. 2009 . "Salience and Taxation: Theory and Evidence." American Economic Review, 99(4): 1145-77.
Choi, James, David Laibson, Brigitte C. Madrian, and Andrew Metrick, “Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance,” forthcoming in Tax Policy and the Economy 2001.
Choi, James, David Laibson, Brigitte C. Madrian, and Andrew Metrick, “For Better or For Worse: Default Effects and 401(k) Savings,” in NBER Volume on Aging, edited by David Wise.
Choi, James, David Laibson and Brigitte C. Madrian (2011). “$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans.” Review of Economics and Statistics,93(3): 748-763.
Madrian, Brigitte C., and Dennis F. Shea. "The power of suggestion: Inertia in 401 (k) participation and savings behavior." The Quarterly Journal of Economics116.4 (2001): 1149-1187.
Mullainathan and Shafir, Scarcity: Why Having Too Little Means So Much.
Mani et. al, “Poverty Impedes Cognitive Function,” Science August 2013.
Milkman, Katherine L., John Beshears, James J. Choi, David Laibson, Brigette C. Madrian. 2011. “Using Implementation Intentions Prompts to Enhance Influenza Vaccination Rates.” Proceedings of the National Academy of Sciences108(26): 10415-10420.
Shah et. al, “Some Consequences of Having Too Little,” Science November 2012.
Simonson, Itamar. “The Effect of Purchase Quantity and Timing on Variety-Seeking.” In Choices, Values and Frames, Ch. 41, pp. 735–757.
* Thaler, Richard. “ Mental Accounting Matters.” In Choices, Values and Frames, Ch. 14, pp. 241–268.
* Thaler, Richard. “ Savings, Fungibility, and Mental Accounts.” In The Winner's Curse, Ch. 9, pp. 107–121.
Thaler, Richard. “The Endowment Effect, Loss Aversion, and Status Quo Bias.” The Winner's Curse, Ch. 6, pp. 63–78.
Tversky, Amos and Daniel Kahneman. “Rational Choice and the Framing of Decisions.” In Choices, Values and Frames, Ch. 12, pp. 209–223.
Class 21. Asset Pricing (April 14: David Laibson)
• Net present value
• Expected return
• Risk premium
• Autoregressive process
• Random walk
• Market efficiency
• Limits of arbitrage
Cooper, Michael J., Orlin Dimitrov, and P. Raghaendra Rau, 2001. " A rose.com by any other name," Journal of Finance 56(6), p. 2371-2388.
De Bondt, Werner FM, and Richard Thaler. "Does the stock market overreact?." The Journal of finance 40.3 (1985): 793-805.
Huberman, Gur and Tomer Regev, 2001. " Contagious Speculation and a Cure for Cancer: A Non-Event that Made Stock Prices Soar," Journal of Finance 56(1), p. 387-396.
Lakonishok, Josef, Andrei Shleifer, and Robert Vishny. “ Contrarian investment, extrapolation, and risk,” Journal of Finance 49:5 (1994), 1541–1578.
* Lamont, Owen and Richard Thaler, 2003. " Can the market add and subtract? Mispricing in tech stock carve-outs" Journal of Political Economy 2003.
Mitchell, Mark, Lasse Heje Pedersen, and Todd Pulvino, “ Slow Moving Capital,” American Economic Review.
Nagel, Stephen, and Ulrike Malmendier, “Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?” Quarterly Journal of Economics, February 2011, vol. 126(1), pp. 373-416.
Rashes, Michael, 2001. “ Massively Confused Investors Making Conspicuously Ignorant Choices (MCI–MCIC),” Journal of Finance 56(5), p. 1911-1927.
Shleifer, Andrei. Clarendon lectures, Ch. 1, 3, 4, 5, 6 Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?” Journal of Finance 41, p. 579–590.
* Thaler, Richard. “ A Mean Reverting Walk Down Wall Street,” In The Winner's Curse, Ch. 12, pp. 151–167
Class 22. Bubbles (April 16: David Laibson)
● Leverage ● Credit default swaps ● Asset-backed securities ● Collateralized debt obligations ● Bank-runs ● Extrapolation bias
Asness, Clifford, 2000. “ Bubble Logic,” AQR Capital Management, mimeo.
Brunnermeier, Markus, 2009. " Deciphering the Liquidity and Credit Crunch of 2007 - 08," Journal of Economic Perspectives .
Burnside,Craig, Martin Eichenbaum and Sergio Rebelo, "Understanding Booms and Busts in Housing Markets," manuscript, Northwestern University.
Chauvin, Kyle, David Laibson, and Johanna Mollerstrom. 2011. "Asset Bubbles and the Cost of Economic Fluctuations." Journal of Money, Credit, and Banking 43:233-260.
* Fuster, Andreas, Benjamin Hebert, and David Laibson. 2011. “Natural Expectations, Macroeconomic Dynamics, and Asset Pricing.” NBER Macroeconomics Annual 26.
Fuster, Andreas, David Laibson, and Brock Mendel. 2010. "Natural Expectations and Macroeconomics Fluctuations" Journal of Economic Perspectives 24(4):67-84.
* Garber, Peter, M. " Famous First Bubbles," Journal of Economic Perspectives 4 (1990), 35–54.
Laibson, David and Johanna Mollerstrom. 2010. "Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis." The Economic Journal 120(544): 354-374.
Mian, Atif, and Amir Sufi. H ouse of Debt: How They (and You) Caused the Great Recession, and how We Can Prevent it from Happening Again. University of Chicago Press, 2014. Shin, Hyun, 2009. " Reflections on Northern Rock: The Bank Run that Heralded the Global Financial Crisis," Journal of Economic Perspectives .
Class 23. Behavioral Agents in Markets (April 21: David Laibson)
● Loss leaders ● Sophisticates and myopes ● Cross-subsidies ● Bertrand competition ● Dead-weight loss Brown, Jennifer, Tanjim Hossain, and John Morgan (2010). “Shrouded Attributes and Information Suppression: Evidence from the Field”Q uarterly Journal of Economics 125(2): 859-876.
Della Vigna, Stefano, and Ulrike Malmendier (2004),“ Contract Design and Self-Control: Theory and Evidence.” Quarterly Journal of Economics, 119(2): 353-402.
* Della Vigna, Stefano, and Ulrike Malmendier (2006).“ Paying Not to Go to the Gym.” American Economic Review,96(3): 694-719, June.
* Gabaix, Xavier and David Laibson (2006), “S hrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,” Quarterly Journal of Economics, 121(2): 505-540. Introduction is required. Rest of paper is optional.
Gabaix, Xavier, David Laibson, Deyuan Li, Hongyi Li, Sidney Resnick, Casper G. de Vries, 2013. “ The Impact of Competition on Prices with Numerous Firms” working paper.
Koszegi, Boton, Paul Heidhues, and Takeshi Murooka“The Market for Deceptive Products” working paper 2012.
Laibson, David and Leeat Yariv (2007), “ Safety in Markets: An Impossibility Theorem for Dutch Books,” working paper.
Murooka, Takeshi, D eception under Competitive Intermediation working paper.
Class 24. Happiness and Subjective Well-Being (April 23: David Laibson)
• Experienced utility
• Remembered utility
• Decision utility • Adaptation
• Happiness
• Subjective Well-Being
Gilbert, Daniel, Pinel, E.C., Wilson , T.D., Blumberg, S.J., & Wheatley, T. (1998). " Immune neglect: A source of durability bias in affective forecasting ." Journal of Personality and Social Psychology , 75, 617-638.
Kahneman , Daniel. “Experienced Utility and Objective Happiness: A Moment Based Approach.” In Choices, Values and Frames, Ch. 37, pp. 673–692.
* Kahneman, Daniel. “ New Challenges to the Rationality Assumption.” In Choices, Values and Frames, Ch. 42, pp. 758–774.
Kahneman, Daniel, Ed Diener, and Norbert Schwarz, eds., Well-Being, Russell Sage Foundation, 1999.
Loewenstein, George and David Schkade, D. (1999). “Wouldn't it be nice? Predicting future feelings.” In
Daniel Kahneman, Ed Diener, and Norbert Schwartz, (eds .), Well-being: The Foundations of Hedonic Psychology . Russell Sage Foundation: New York , Ch. 5, pp. 85–105.
Lowenstein, George and Daniel Adler. “A Bias in the Prediction of Tastes.” In Choices, Values and Frames, Ch. 40, pp. 726–734.
* Stevenson, Betsey and Justin Wolfers (2008) '' Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox'' Brookings Papers on Economic Activity , Spring 2008.
Weinstein, Neil D. “ Unrealistic Optimism About Future Life Events. ” Journal of Personality and Social Psychology , 39 (1980), 806–820.
Class 25. Paternalism (April 28: David Laibson)
● Libertarianism ● Paternalism ● Assymetric paternalism ● Libertarian paternalism ● Hard paternalism ● Soft paternalism ● Utilitarianism ● Preference Heterogeneity * Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian. 2008. " How Are Preferences Revealed?"Journal of Public Economics 92(8-9): 1787-1794.
* Camerer, Colin; Issacharoff, Samuel; Loewenstein, George; O'Donoghue, Ted; Rabin, Matthew (2003). “Regulation for Conservatives: Behavioral Economics and the Case for ‘Asymmetric Paternalism’,” University of Pennsylvania Law Review, 151(3): 1211-1254.
Card, David, Stefano DellaVigna, and Ulrike Malmendier (2011),“The Role of Theory in Field Experiments”Journal of Economic Perspectives 25(3): 39-62, Summer.
* Carroll, Gabriel, Choi, James, David Laibson, Brigitte C. Madrian, and Andrew Metrick, “ Optimal Defaults and Active Decisions,” 2009 Quarterly Journal of Economics
Nisbett and Ross, The Person and Situation, McGraw Hill, 1991.
Thaler, Richard H. and Cass R. Sunstein (2003). “Libertarian Paternalism.”The American Economic Review 93(2): 175-179.
Thaler. The Winner’s Curse: Paradoxes and Anomalies of Economic Life, Princeton, N.J.: Princeton University Press, 1994.
Thaler, Richard, and Cass Sunstein, Nudge, 2010.