• University of Exeter Business School
• Module

Behavioural Economics for Leaders

Module description

Why do people not always act as rational economic decision makers? How can we apply psychology to improve our

understanding of decision making? Contrary to assumptions in traditional economics, people do not automatically choose the optimal course of action, even if given proper incentives. Seemingly irrational behaviour can have impacts in every aspect of business, from organisation behaviour to consumer behaviour and market forces.

This module provides an overview of the field of behavioural economics and focuses on the psychology of decision making processes, both as an individual and in groups. Behavioural economics considers the ways that people are more social, more impulsive, less adept at using information, and more susceptible to psychological biases than the standard economic models assume. We will explore key departures, and the consequences for individuals, organisations and policy.

The module focuses on some of the inherent biases in human decision processes and challenges the assumption of rationality in decision making. The course provides a number of examples of behavioural biases which reflect that we can be “predictably irrational” in our decision making processes. Once we have established a better understanding of some of the inherent biases in our decision processes, we then turn to discuss how business strategy and public policy can “nudge” individuals and groups to make better decisions. This includes a discussion on how we can affect decision making processes to increase savings rates, respond to customer demand and making better decisions for the environment and our health.

Module aims - intentions of the module

Behavioural Economics offers powerful insights into the world in which we live and the decisions that humans make on a daily basis. This behavioural economics module aims:

• To provide a useable body of economic theory, which will equip students with a real understanding of the role of behavioural economics in business, public and private decision making.
• To show the constraints on rationality and understand why irrational behaviour occurs.
• To understand how humans make decisions (thinking fast and slow) and why poor decisions are made.
• To illustrate how behavioural economics is relevant to businesses in particular ethical decision making, influence and marketing.
• To develop students’ understanding of the how we can use economic theory to enrich and improve our ability to examine how changes in economic policy will affect business behaviour.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

• 1. define what is meant by the term “behavioural economics” and how this particular field of economics has developed and informed our understanding of ethics in relation to human decision making;
• 2. Critically analyse and evaluate and synthesise the models and theories which explain human-decision making, in order to identify the implications upon a contemporary business and its responsible leadership

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

• 3. apply behavioural theories in the analysis of unethical organisational behaviour, in order to identify improved models of governance and leadership;
• 4. analyse how an understanding of behavioural biases is critical for the creation of effective policies to address critical issues we face around savings, health and the environment.

ILO: Personal and key skills

On successfully completing the module you will be able to...

• 5. take a global outlook: apply creative intelligence and ethical imagination to complex problems to ensure that environmental and social governance is taken into account;
• 6. work with a collaborative mind-set: give and receive feedback at all levels in a confident and respectful manner. Work inclusively across multi-cultural groups to research, explore and prepare a persuasive argument against an assignment or client brief;
• 7. develop an ethical perspective: improve personal effectiveness through consciously and diligently making decisions on behalf of all stakeholders, environmental, social and financial;

Syllabus plan

• Introduction to the field of behavioural economics and how this differs from “standard” economic theory.
• Discussion on how humans make decisions with a focus on key theories and influential models.
• Discussion of the cognitive biases that affect decision making and why humans are “predictably irrational” in many of our decision processes.
• Discussion of irrationality and complexity and how dealing with irrational behaviour requires more complex thinking and holistic systems.
• Discussion of irrationality and paradox, how irrationality creates business problems that cannot be solved but must be dealt with nonetheless.
• Discussion on Prospect Theory and its implications for decision making
•  ‘Nudging’ and how it can be used to improve business and society, and the ethical implications of doing so.

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Indicative learning resources - Basic reading

Akerof, G & Shiller, R. (2009). Animal Spirits. Princeton University Press

Ariely, D. (2009), Predictably Irrational, HarperCollins: London

Baddeley, M. (2017). Behavioural Economics. A very short introduction. Oxford University Press: Oxford

Kahneman, D. (2011), Thinking, Fast and Slow, Penguin Group.

Thaler, R. H. Sunstein, C. R. (2009), Nudge, Yale University Press.

Wilkinson, K. & Klaes, M. (2012). An Introduction to Behavioural Economics. Palgrave MacMillan

Key words search

Behavioural economics, decision making, consumer behaviour, nudging