Suggestions for incremental change to behavioural economics courses, drawn from the ten building blocks of Economy Studies.
Change often happens incrementally and slowly. In the economics textbook market, for example, there is an unwritten rule that new textbooks cannot differ more than roughly 15% from the standard textbook in order to be ‘acceptable’ (Colander, 2003).
While our book clearly breaks this rule and proposes more far-reaching and fundamental changes in most chapters, in this chapter we focus instead on how existing courses could be adjusted incrementally. By doing so, we hope to assist educators in improving and adapting the courses they teach without needing to rip them up and start again, as well as helping students make suggestions for how this could be done.
First, we set out the typical contents of current courses. Second, we provide our suggested additions and changes. It is important to note that we pose all these suggestions as potential sources of inspiration, not a checklist of all the things that necessarily should be included. After all, there is a practical limit to what can be taught within a single course.
Typical contents of current courses
Behavioral economics is increasingly incorporated into mainstream economic research and teaching. In this way, more and more economics programs include courses on behavioral economics. These courses often focus on how experiments have shown how human behavior deviates from neoclassical theories with its hyper rational agents. This approach to behavioral economics, sometimes referred to as new behavioral economics, conceptualizes behavior as being boundedly rational, because people make use of heuristics and have biases. Often methodological knowledge and skills related to experiments are also taught in behavioral economics courses. As mentioned above, there is often considerable overlap between behavioral economics and game theory courses, but for the sake of clarity here we only provide suggestions for the behavioral material, while we covered game theory material above.
Frequently used textbooks:
- The Foundations of Behavioral Economic Analysis by Sanjit Dhami
- An Introduction to Behavioral Economics by Nick Wilkinson and Matthias Klaes
- Behavioral Economics by Edward Cartwright
- Behavioral Game Theory: Experiments in Strategic Interaction by Colin Camerer
Suggested additions and changes
Practical skills and real-world knowledge
Behavioral economics courses often already include discussions of its practical applications. We encourage teachers to continue doing this and enrich the courses further by bringing the students even closer to the real world. This can, for example, be done by letting a policy economist from a government behavioral insights team, or a marketing employee of a company, give a guest lecture about how behavioral insights can be applied in practice. Another possibility is to give students assignments in which they analyse a real world case, perhaps even for an external (public, private or civic) organization. These could be extensive projects in which students develop detailed analyses and proposals for behavioral interventions. But it could also be a very brief exercise to let them analyse the local supermarket and how it tries to nudge customers into buying more (of certain products).
For more detail, see Building Block 2: Know Your Own Economy and Building Block 9: Problems & Proposals.
- The Behavioral Economics Guide 2020 – New Challenges for Behavioral Economics by Alain Samson, from 2020. This informative collection of essays, accompanied with useful resources, provides an overview and introduction into new challenges and applications of behavioral economics, from the COVID-19 pandemic and the climate crisis to online behavioral experiments and the sharing economy.
A range of analytical tools and approaches
Behavioral economics focuses on human economic decision making and builds on psychological insights about limited human cognitive capabilities, heuristics, and biases. Like game theory courses, behavioral economics courses can be enriched by devoting (more) teaching time to social aspects of human behavior and decision making. This can be done by including material from approaches that focus on this, such as institutional, social network, field and cultural economics. But this can also be done by bringing in guest lectures from (economic) sociology or anthropology, as these disciplines are specifically focused on the social aspects of human and economic life. As is currently already often done, we encourage teachers to run (online) experiments and surveys in class to let students more directly experience the discussed issues.
For more details, see the background materials Interdisciplinary Economics and Economic Approaches.
- Advanced Introduction to Behavioral Economics by John F. Timer, from 2017. An impressive introduction into behavioral economics, with attention to its different strands and relation to psychology as well as its applications to finance, public policy, law, and macroeconomics.
- Behavioral Economics and Its Applications by Peter Diamond and Hannu Vartiainen, from 2007. An insightful collection of essays on the applications of behavioral economics, with chapters on public policy, development, wage rigidity, and healthcare.
- The Behavioral Economics Guide 2017 – Expanding Boundaries by Alain Samson, from 2017. This informative collection of essays, accompanied with useful resources, explains to students how behavioral economics is developing and provides examples through chapters on, among other things, nudging in developing countries, brand loyalty, and choice architecture in retail finance.
- The handbook of economic sociology by Neil J. Smelser & Richard Swedberg, most recent edition from 2010.
- Principles of Economic Sociology by Richard Swedberg, from 2003.
- Economic Anthropology: History, Ethnography, Critique by Chris Hann and Keith Hart, from 2011.
- A handbook of economic anthropology by James G. Carrier, from 2012.
- The architecture of markets: An economic sociology of twenty-first-century capitalist societies by Neil Fligstein, from 2001.
- The Social Structures of the Economy by Pierre Bourdieu, from 2000.
- The Impact of Social Structure on Economic Outcomes by Mark Granovetter, from 2005.
- Economic Lives: How Culture Shapes the Economy by Viviana Zelizer, from 2010.
- The Anthropology of Economy: Community, Market, and Culture by Stephen Gudeman, from 2001.
- Institutions in Economics: The Old and the New Institutionalism by Malcolm Rutherford, from 1999.
- The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism by Geoffrey Hodgson, from 2004.
Institutions and different ways of organising the economy
Institutions and economic structures are an important element of the social aspects that influence human behavior. Therefore, it is important that students learn about how social situations and institutional configurations can shape behavior and decisions. Is the level of shirking among employees, for example, lower and their motivation higher, when they have more say over their work and how the firm is run through worker representation in the board? Can introducing performance-related pay in certain economic sectors, or organizations, be counterproductive because it does not fit prevailing social norms and practices?
For more detail see Building Block 5: Economic Organisations & Mechanisms and the section Firms and Households in the background material Pragmatic Pluralism.
- Conflict and cooperation: institutional and behavioral economics by Allan Schmid, from 2008. This informative book on how economic institutions can shape behavior, introduces students both to institutional as well as behavioral economics and contains chapters on labour, political, technological, financial, and market institutions.
- The cognitive basis of institutions: A synthesis of behavioral and institutional economics by Shinji Teraji, from 2018. This book aims to bring institutional and behavioral economics together in one framework, with chapters on prosocial behavior, cognition, and institutional evolution.
- Institutional economics and behavioral finance by Ben Branch, from 2014. A useful article connecting insights from behavioral finance and institutional economics, helping students better understand what behavior different financial institutions can generate.
Societal relevance and normative aspects
Behavioral economics, and in particular its application to policy making, has been the subject of normative debate. The underlying normative ideas of behavioral economics, often referred to as ‘libertarian paternalism’, have been developed in relation to other ethical approaches to policy making. Therefore it is important that students learn what these various normative approaches are to questions surrounding welfare, freedom and solidarity, and what the arguments for and against them are.
It is also interesting to note that more left-wing economists sometimes focus more on showing how markets can fail because of irrational behavior, associated with ‘behavioral economics’. While more right-wing economists have a tendency to focus on showing how markets can lead to ‘competitive, or optimal, equilibria’ through real human behavior, occasionally linked to ‘experimental economics’.
Finally, sometimes neoclassical economics is described as providing a normative framework that is complemented with a descriptive framework provided by behavioral economics. ‘Nudging’ in this regard often means influencing people to behave more like the neoclassical ‘rational man’, or at least come closer to it in its outcomes. It is important that students learn to question normative assumptions and become familiar with different perspectives on the ethics surrounding behavioral questions. Some discussion on the propriety of economists or other social scientists helping to engineer or otherwise influence (nudge) people’s behaviour would also be good.
For more detail, see Building Block 1: Introducing the Economy and Building Block 10: Economics for a Better World.
- The Oxford Handbook of Professional Economic Ethics by George F. DeMartino and Deirdre McCloskey, from 2016, chapters 11, 16-17 & 20-22. This insightful collection of essays explores the different aspects of ethics in economics, with two chapters devoted to ethical issues related to behavioral economics, the positive-normative distinction, experiments, field research and running randomized evaluations.
- The Routledge Handbook of Ethics and Public Policy by Annabelle Lever and Andrei Poama, from 2019, chapters 40-41. This useful collection of essays treats many different aspects of the ethics of public policy, including two chapters on the ethics of neuroscience and behavioral public policy.
- The Behavioral Economics Guide 2019 – Ethics and Integrative Thinking by Alain Samson, from 2019. This informative collection of essays, accompanied with useful resources, opens with a chapter on ethics and follows with chapters on applications to issues such as pro-environmental behavior, gender equality and marketing.
- Behavioral Economics: Toward a New Economics by Integration with Traditional Economics by Masao Ogaki and Saori C. Tanaka, from 2018, chapters 10-11. This advanced textbook aims to introduce behavioral economics as part of traditional economics and contains two chapters on wellbeing, happiness, the normative aspects of behavioral economics, libertarian paternalism and virtue ethics.
Students can benefit from learning about the history of behavioral economics. Firstly, to help them understand the different ideas and theories, and how they relate to each other. And secondly, to learn about the applications in practice and how the historical contexts have influenced economists’ thinking. Realizing the (potential) influence of various factors on economists’ thinking can help make students more conscious and critical in their future careers about how they themselves interact with their environment.
For more detail, see Building Block 4: History of Economic Thought & Methods.
- Behavioral economics: A history by Floris Heukelom, from 2014. An insightful history of how behavioral economics emerged and evolved over time.
- Routledge Handbook of Behavioral Economics by Roger Frantz, Shu-Heng Chen, Kurt Dopfer, Floris Heukelom, and Shabnam Mousavi, from 2016. An impressive collection of essays on the many different behavioral economists and applications, from thinkers such as George Katona and Herbert Simon to topics such as emotions and agent-based modelling.
What to take out
To create space for the above suggested additions, we advise to focus more on the key ideas and intuitions behind the taught models and devote less teaching time to their technicalities and mathematics. As teaching students to reproduce and work through mathematical models often takes up a large part of the teaching time, this would give the teachers the opportunity to devote more time to practical knowledge, the relevance, institutions, and history. Furthermore, simply teaching a smaller amount of behavioural anomalies and biases and instead teaching more of the other aspects could enhance students’ understanding and mastery of behavioural economics.