Behavioural Economics in Practice
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.
Full module specification
|Module title:||Behavioural Economics in Practice|
|Duration of module:||
Duration (weeks) - term 3: |
5 day block taught
Behavioral 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 behavioral 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 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 behavior.
ILO: Module-specific skills
- 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. Analyse and evaluate the models and theories which explain human-decision making, in order to identify the implications upon a contemporary business and its operations.
- 3. Synthesise various elements of behavioural economics in order to determine an appropriate model for responsible business leadership.
ILO: Discipline-specific skills
- 4. Apply behavioural theories in the analysis of unethical organisational behaviour, in order to identify improved models of governance and leadership.
- 5. Analyse how an understanding of behavioral 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
- 6. Create a persuasive communication (report/ essay/ presentation) with the intent to persuade and influence a targeted audience.
- 7. Critically analyse academic theory in order to locate the salient points relevant to designing an impactful business strategy.
- 8. Through debate and discussion identify the global complexities of contemporary business practice.
Learning activities and teaching methods (given in hours of study time)
|Scheduled Learning and Teaching Activities||Guided independent study||Placement / study abroad|
Details of learning activities and teaching methods
|Category||Hours of study time||Description|
|Scheduled teaching||30||Lectures and seminars|
|Guided Independent Study||70||Personal research, collaborative enquiry and Web-based activities|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Group enquiry looking at case study||15 minutes||1-8||Peer feedback|
Summative assessment (% of credit)
|Coursework||Written exams||Practical exams|
Details of summative assessment
|Form of assessment||% of credit||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Individual: Analyse a given case study, drawing upon BE theories and concepts covered in the module. Draw a conclusion on what aspects of BE the case relates to and go on to propose a reputational repair strategy using the same BE principles.||100||3,500 words||1-8||Written and oral feedback|
Details of re-assessment (where required by referral or deferral)
|Original form of assessment||Form of re-assessment||ILOs re-assessed||Timescale for re-assessment|
|Individual: Analyse a given case study, drawing upon BE theories and concepts covered in the module. Draw a conclusion on what aspects of BE the case relates to and go on to propose a reputational repair strategy using the same BE principles.||Individual: Analyse a given case study, drawing upon BE theories and concepts covered in the module. Draw a conclusion on what aspects of BE the case relates to and go on to propose a reputational repair strategy using the same BE principles. 3,500 words||1-8||Written and oral feedback|
- 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, Akerof and Shiller’s critique of demand and supply and the potential for manipulation and deception by the supply side as highlighted in their book Phishing for Phools
- Nudge economics and how it can be used to improve business and society, and the ethical implications of doing so.
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.
Further texts and readings are suggested on ELE.
Module has an active ELE page?
Last revision date