Behavioral Economics and Public Policy

The course gives an introduction to behavioral economics through various tools and techniques and gives a detailed perspective to understand decision making. It will help in understanding the various psychological processes that a consumer goes through while making a decision using topics like nudges, choice architectures, some notions of fairness and also some real life examples. The course will also contextualise how a simple nudge can change a person’s decisions, strategies, and choices. The course touches upon indicators like Heuristics and biases, growth biases and risk preferences. The course will also introduce the terms like Loss aversion, sunk costs, discounting. It will give a distinction between the thought processes of econs and humans. Lastly, the course also delves into the topic of discrimination and its types, evidences and consequenes and how policies have been introduced to reduce the various gaps.

At the end of this course, you will

• Explain and analyze nudges and how choices can alter a person’s behaviour
• Understand decision making and its deep psychological processes.
• Correlate human behviour with financial decisions.
• Understand the various choices and strategies that we take in real life environment by practical examples.

Week 1: Heuristics and Biases

• Heuristics and Biases
• Representativeness
• Biases resulting from representativeness
• Anchoring
• Availability
• Affect
• Overconfidence
• Exponential growth bias
• Other biases

Week 2: Risk Preference of Humans

• Changes vs Levels
• Loss aversion: losses and gains
• Probability weighting function
• Prospect theory
• Mental accounting
• Bundling gains and losses
• Acquisition and Transaction Utility
• Sunk Costs

Week 3: Impatience and Self Control

• Discounting the future
• Exponential discounting
• Anomalies
• Present biased discounting
• Naifs. Partial Naifs and sophisticates
• Commitment Contracts

Week 4: Strategic thinking and social preferences

• Strategic thinking among econs
• Strategic thinking among humans: Level K
• Cognitive Hierarchy Model
• The idea of fairness

Week 5: Behavioral Public Policy

• Discrimination
• Post hoc justification
• Types of Discrimination
• Evidence of Discrimination
• Consequences of Discrimination
• Combatting Discrimination
• Economics of Gender
• Differences in Gender
• Policies to rduce gender gaps

Week 6: Nudges and Public Policy

• Nudges
• Designing a choice architecture
• Choice architecture
• Half a dozen nudges