Behavioral Decision Making
Every single day, people make countless judgments and decisions. In every domain – financial, consumer, professional, romantic, health-related, etc. – people want to make the right decision. But whereas most people believe they are capable of making good decisions, reality shows that often they do not, even for decisions that may be consequential or life-changing. Why do savvy people make sometimes weird and even ‘foolish’ judgments and decisions?
For example, consider the following questions: Why do real estate agents consider a house they inspected to be more valuable when the seller listed it at a higher price? Why do doctors tend to overestimate the risk of addiction when prescribing opioid analgesics for pain relief and undertreat severe pain as a result? Why are investors more likely to keep their losing than their winning stocks? Why would more individuals spend $10 on a theater ticket if they had just lost a $10 bill than if they had to replace a lost ticket worth $10? Why are people who buy a four-day ski pass less likely to ski all four days than people who buy four one-day ski passes? Why do consumers choose a refrigerator that costs 50€ less than another equivalent model, but consumes 50€ more in electricity every 2 years? Why does unethical behavior increase with creativity?
This course provides insight into scientific research on judgment and decision making, where psychology and economics collide and collaborate to understand human behavior. It provides basic knowledge of theories, concepts and methods that is necessary to understand how decisions are made. The course is inspired by the groundbreaking, Nobel-prize winning work of Tversky and Kahneman (Nobel prize 2002), Thaler (Nobel prize 2017) as well as seminal work and research programmes of other leading thinkers in the field. The course is largely centered around the question of how and when humans deviate from rational thinking. This is captured by a well-documented array of heuristics and biases that help to make reasonable and accurate decisions in some areas, but may crucially misguide in others. We will discuss eye-opening research that documents several well-known biases as well as focus on mental accounting, loss/gain framing, (intertemporal) choices, visceral influences, self-control and well-being, nudging, forecasting, motivated reasoning and (dis)honesty.
During the lectures, basic concepts and theories will be discussed, specific issues related to the literature will be further explained, and certain topics will be zoomed in on. The lectures are not merely repetition of the course literature, but they provide additional perspectives and in-depth information. You will work in small teams on group assignments.
