This course aims to give students an awareness as to how mental accounting, heuristics and other psychological phenomena can impact business. The course intends to assist and encourage students to exploit basic principles of behavioral economics to add value to their business activities by increasing profit, increasing customer satisfaction and allocating capital efficiently.
Increasing research, such as that by Nobel prize winner Daniel Kahneman, shows that day to day business decisions are significantly influenced by mental biases, which result in inefficiencies, errors and lost income.
We wish to enhance the efficiency, effectiveness and profitability of our students’ business decisions by making them aware of their biases and developing strategies to avoid the negative effects of those biases. Moreover, we wish to help our students to be aware of the biases of others, such as customers, managers, colleagues. Similarly, we wish to help students develop means of overcoming these biases, and, in some cases, to exploit these biases to achieve positive outcomes.
This course is an introductory course with a focus on introducing the principles and main features of behavioral economics. We begin with a general overview of heuristics, together with a review of key psychological phenomena.
The course covers the main components of behavioral economics, beginning with an assessment of good decisions and followed by the potential biases which can potentially distract individuals from making good decisions. Course continues to cover strategies which can potentially reduce the negative effect of various biases and lead to greater probability of good decision making.
Credit: 1
Lecture Hours: 18
Self-Study Hours:
Total Study Hours: 53
Prerequisites
Students must have finished Psychology and Marketing to study in this course.
On successful completion of this course, students will be able to:
1 Knowledge
| Level of Learning | PLO | CLO | Learning Outcome |
|---|---|---|---|
| Analyze | PK1 | CK1 | Identify this relatively new sub-discipline of economics, whether people make poor choices, and how predictive power of its theories can be used in better economic decision making. |
| Evaluate | PK1 | CK2 | Evaluate the effects of behavioral biases on business and personal decision making. |
2 Cognitive Skills
| Level of Learning | PLO | CLO | Learning Outcome |
|---|---|---|---|
| Evaluate | PC1 | CC1 | Evaluate the principles underlying rational decision making and assess how far rational thought can be used as a basis of decision making in practice. |
| Analyze | PC1 | CC2 | Analyze the contributory factors to bias in behavioral economics theory and the potential impact these factors have on rational decision making. |
| Apply | PC1 | CC3 | Evaluate possible strategies to avoid bias in decision making and apply these to real life situations. |
3 Communication, Information Technology, and Numerical Skills
| Level of Learning | PLO | CLO | Learning Outcome |
|---|---|---|---|
| Create | PCI4 | CCIT1 | Construct a business by importing / buying products from suppliers and resell using the principles studied in behavioral economics. |
4 Interpersonal Skills and Responsibilities
| Level of Learning | PLO | CLO | Learning Outcome |
|---|---|---|---|
| Apply | PIP4 | CIP1 | Work effectively in groups to develop and present a real-life case study of decision-making incorporating rationality sources of bias and strategy to avoid poor decision making. |
The course targets the 13 lessons in the study plan below. Each lesson is 1.5 class hours each; there are a total of 19.5 class hours. The study plan below describes the learning outcome for each lesson, described in terms of what the student should be able to do at the end of the lesson. Readings should be done by students as preparation before the start of each class. Implementation of this study plan may vary somewhat depending on the progress and needs of students.
| No | Lesson Learning Outcomes | Teaching and Learning Activities, Assessment |
|---|---|---|
| 1 |
Introduction to Behavioral Economics
|
Lecture Class Discussion Reading: What Is a Good Decision? (Page 4 – 10) |
| 2 |
The Rise of Behavioral Economics
|
Lecture Class Discussion Reading: The Rise of Behavioral Economics (Page 11 – 17) |
| 3 |
Reference Dependence
Quiz 1: Lesson 1 – 2 |
Lecture Class Discussion Reading: Reference Dependence: It’s All Relative (Page 18 – 24), Reference Dependence: Economic Implications (Page 25 – 31) |
| 4 |
Range Effect & Probability Weighting
|
Lecture Group Discussion on the Assignment Reading: Range Effects: Changing the Scale (Page 32 – 38), Probability Weighting (Page 39 – 45) |
| 5 |
Risk & Ambiguity
Quiz 2: Lesson 3 – 4 |
Lecture Class Discussion Reading: Risk: The Known Unknowns (Page 46 – 52), Ambiguity: The Unknown Unknowns (Page 53 – 59) |
| 6 |
Bounded Rationality
|
Lecture Class Discussion Reading: Bounded Rationality: Knowing Your Limits (Page 74 – 80) |
| 7 |
Heuristics and Biases
Quiz 3: Lesson 5 – 6 |
Lecture Class Discussion Reading: Heuristics and Biases (Page 81 – 87) |
| 8 |
Precommitment
|
Lecture Class Discussion Reading: Precommitment: Setting Rationality Aside (151 – 157) |
| 9 |
Framing
Quiz 4: Lesson 7 – 8 |
Lecture Class Discussion Reading: Framing: Moving to a Different Perspective (Page 158 – 164) |
| 10 |
Interventions, Nudges, and Decisions
|
Lecture Class Discussion Reading: Interventions, Nudges, and Decisions (Page 165 – 172) |
| 11 | Review all chapters Quiz 5: Lesson 9 – 10 | Lecture |
| 12 | Presentation | Assignment submission & presentation |
| Total Hours: 18 hours | ||
This course uses lecture/discussion and assignments; assigned readings will support learning and serve as a reference to material covered in class. During class, a varying (but at least 50%) percentage of the class will be devoted to the lecture/discussion with the balance of the class devoted to the discussion of how the concepts apply to the Action Learning Project. Throughout the semester, some class time will be used for in-class tests.
Grades will be determined based on the following assessments and score allocations: Assignments Individual presentation10%CC1, CCIT1, CIP1PICT4, PIP1, PIP2
| Assessment | Weight of each assessment | Learning Outcome Assessed | |
|---|---|---|---|
| CLO | PLO | ||
| Participation | 20% | CC1, CCIT1, CIP1, CIP2 | PC1, PCI4, PIP1 |
| Group Assignment | 60% | CC1, CC3, CCIT1, CIP1 | PC1, PCI4, PIP1 |
| Quiz | 20% | CK1, CK2, CK3, CC1, CC2 | PK1, PC1 |
| Total grading score | 100% | ||
There is one assignment :
Construct a Business
| Work Group: | Group of 2-3 |
| Output format: | Report & Presentation |
| Assignment: | Each group is required to buy or import (for example; buy a unique product on Amazon / Taobao / e-Bay or from a local distributor) a product and resell the product using the principles studied in Behavioral Economics. The product needs to be sold and generate a minimum gross revenue of $200. Each team prepares a written report and presents a summary of this project in an oral presentation. |
Textbook
References