Corsi di Studio del Dipartimento di Economia e Statistica "Cognetti de Martiis"

The course aims to introduce the approach and methodology of behavioural decision theory, through the study of the most relevant contributions to the literature and the new research topics, with a particular interest in the theory of individual decision-making under risk and uncertainty, its normative and descriptive aspects. Moreover, the course also aims to introduce students to the methodology of experimental economics, considering some of its applications in various areas of decision theory by actively involving students in laboratory decision-making experiments. By reconsidering some of the assumptions regarding preferences, and rationality of the economic neoclassical agent - with the help of the experimental methodology - students will be given the theoretical elements necessary to interpret the behaviour of the economic agent in a richer decision environment.

 

At the end of the course, students should know the main areas of research in behavioural decision-making and the new theoretical and methodological instruments of this research area. They should be able to critically view how these new instruments have an impact on their knowledge concerning preferences, rationality and decision-making in different areas of economic theory

Introduction: behavioural decision theory and the standard economic model. History and evolution. Methodology: experimental economics. Why we need it: advantages and costs, the methodological problem of validity

The model of instrumental rationality. Choice under risk and uncertainty. The EU Expected utility model, properties of the EU function. Subjective Expected Utility: the Ellsberg paradox. The attitudes to risk; the certainty equivalent and the risk premium. The main measures of risk aversion. The CARA and CRRA functions

Linearity in probabilities of EU and Independence. The Machina triangle. Violations of linearity: the Allais paradox and the common ratio effect. Separability

The main alternative models to EU. Prospect theory

Nonseparable preferences: emotions, regret. The Framing effect. Preference reversal: some possible explanations. The Endowment effect. Some economic applications of Prospect Theory

The course will be delivered face-to-face and include active learning sessions with participation in laboratory experiments and presentations

 

The evaluation will consist of a final written test and a joint oral presentation to be given during the course. Details about the final exam structure will be given during the course

 

There will not be any particular support activities apart from the ones which can be accessed through the course Moodle page

All teaching material will be distributed during the course and made available on the Moodle page of the course