Economic Psychology

Full course description

Increasingly, economists are discovering psychology as a means to enrich their models of economic behavior and well-being and to give them a better foundation. The importance of this is illustrated by the fact that Nobelprize winner in economics in 2002 was the distinguished psychologist Daniel Kahneman. He characterizes his research as a quest for the ‘logic of the irrational’. Adam Smith already recognized that economic, just like other, behavior is motivated by an intriguing blend of ‘rational’ considerations and ‘irrational’ sentiments. The great challenge is to investigate the implications of the latter motives for economics.

This course aims to give an intensive introduction into this field. The first sessions will provide an overview of the psychology of judgment and decision making. Basic principles of rationality are compared with actual behavior in making decisions. There are important discrepancies between rational and actual behavior that are due not to random errors or mistakes but due to automatic and deliberate thought processes. These processes influence how decision problems are conceptualized and how future possibilities in life are evaluated. The latter sessions will be dedicated to further applications of how psychologic mechanisms influence economic decision-making in the field and their relevance for law and public policy.