Behavioural Economics


Course Objective

- Participants demonstrate active knowledge about how the neoclassical /
rational choice model in Economics can be empirically tested and
questioned, what are the (replicated) evidence-based facts about actual
choice in economic choice situations and which of these facts provide
robust empirical evidence against the neoclassical / rational choice
- Participants demonstrate awareness of their own behavioral biases
through active participation and experiencing some classic experiments,
demonstrate the ability to set up and conduct experiments and
demonstrate being able to reflect upon their experimental setup and
empirical evidence.
- Participants demonstrate a critical evidence-based attitude towards
- The participant demonstrate being familiar with and being able to
reflect upon effective Behavioral Economic policies in contemporary
policy debates.

Course Content

Economics is now being reshaped by taking cognitive constraints in human
decision making into consideration. You might think you have made
rational choices; however, your rationality might not be rational after
all, whether you are aware of that or not. Results from various
experiments have not only demonstrated the existence of cognitive
constraints but more importantly that these make people behave
differently than predicted by the standard economic model of Homo
Economicus in microeconomic textbooks. Cognitive constraints have a
psychological and neuro-physical origin. Economics has included physical
constraints (such as money, time, natural resources and production
technologies) since its beginning; nevertheless, cognitive constraints
should not be taken for granted. Behavioral Economics aims to
incorporate cognitive constraints into Economics to develop better and
evidence-based economic theories.
Behavioral Economics reshapes Economics. It forces a clear distinction
between Economics as a positive science’ explaining economic reality on
the one hand and economic policy that is rooted in evidence-based
normative theory on the other hand. It has profound consequences for
economic policy. For example, having workers automatically enrolled in
pension savings plans (making it the default choice in companies with an
opt-out option possible) increases the number of participants in US
pension saving schemes. This tinkering with the choice architecture is
called “nudging” and has led among others to the Behavioral Insights
Team (BIT), a company spun out of the British government in 2014 which
attempts to make use of human behaviors in policy making. However,
behavioral economic policy induced philosophical debates about whether
such policies are paternalistic or libertarian; Cass Sunstein and
Richard Thaler advocate libertarian paternalism as an alternative to
In this course a selection of established behavioral economic topics
will be introduced: framing, sunk cost fallacy, menu dependence, loss
aversion, endowment effect, gambler’s fallacy, mental accounting,
Allais’ paradox, Ellsberg paradox, ambiguity aversion, behavioral game
theory, limited strategic thinking, quantal response equilibrium social
preferences, reciprocity and trust.

Teaching Methods

Lectures and seminars with class-room experiments, exercise classes, and

Method of Assessment

The mid-term exam consists of a take-home assignment (40% final grade)
that includes conducting experiments (20% final grade), essay (60%) and
seminar assignments (pass/fail).


Whether the same textbook as in 2018 will be used will be announced in
due time.
Selected texts, scientific articles and supporting YouTube videos

Target Audience

Second year PPE students

Custom Course Registration

There is a slightly different enrollment procedure for this module. The standard procedure of the Faculty of Humanities has students sign up for (i) the module, (ii) the form of tuition (lecture and/or preferred seminar group), and (iii) the exam. However, for this module the instructor will assign the students to the seminar groups. Therefore, students should sign up for (i) the module and (ii) lecture, but not for the seminar groups.

Explanation Canvas

Please note that participation in the seminars is mandatory

Recommended background knowledge

Mandatory courses PPE specialization Track 3: Economics

General Information

Course Code W_JSM_217
Credits 6 EC
Period P5
Course Level 200
Language of Tuition English
Faculty Faculty of Humanities
Course Coordinator dr. H.E.D. Houba
Examiner dr. H.E.D. Houba
Teaching Staff dr. H.E.D. Houba

Practical Information

You need to register for this course yourself

Last-minute registration is available for this course.

Teaching Methods Lecture, Seminar*

*You cannot select a group yourself for this teaching method, you will be placed in a group.

Target audiences

This course is also available as: