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:

  • Reading: 10 (Notes)      
  • Review: 10 (Case Studies)
  • Assignment: 15 (Field experiment, Analysis)

Total Study Hours: 53



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

Introduction to Behavioral Economics 

  1. Describe the course learning outcomes and assessment
  2. Understand what is a good decision (CK1)
  3. Describe human choice behavior (CK1)
  4. Group formation
Lecture Class Discussion Reading: What Is a Good Decision? (Page 4 – 10)

The Rise of Behavioral Economics

  1. Explain traditional economic models (CK1)
  2. Identify the history of behavioral economics (CK1)
  3. Explain the prospect theory (CK1)
Lecture Class Discussion Reading: The Rise of Behavioral Economics (Page 11 – 17)

Reference Dependence 

  1. Explain Neuroscience, Reward Prediction Error, Want vs Liking (CK1)
  2. Discussion on loss aversion, reference dependence, and the endowment effect (CK1)
  3. Apply the concept of how to minimize the effects of reference dependance (CK2)

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)

Range Effect & Probability Weighting 

  1. Understand the range effect and economic decision making (CK1)
  2. Explain how to minimize the range effect (CK1)
  3. Identify the bias people show when working with probability (CK1)
  4. Understand how to deal with probabilities (CK2)
Lecture Group Discussion on the Assignment Reading: Range Effects: Changing the Scale (Page 32 – 38), Probability Weighting (Page 39 – 45)

Risk & Ambiguity 

  1. Understand risk and risk aversion (CK1)
  2. Identify how people think about risk (CK1)
  3. Explain how to manage risk (CK2)
  4. Identify the difference between risk and ambiguity (CK1)
  5. Explain Ambiguity Aversion and ways to minimize the effect of ambiguity (CK2) 

Quiz 2: Lesson 3 – 4

Lecture Class Discussion Reading: Risk: The Known Unknowns (Page 46 – 52), Ambiguity: The Unknown Unknowns (Page 53 – 59)

Bounded Rationality 

  1. Understand human has limited computational abilities (CK1)
  2. Explain bounded rationality (CK1)
Lecture Class Discussion Reading: Bounded Rationality: Knowing Your Limits (Page 74 – 80)

Heuristics and Biases

  1. Explain four of the most important heuristics, each of which provides a tool for overcoming a particular sort of cognitive limitation (CK1)
  2. Running class experiments to observe the influence of heuristics (CCIT1)

Quiz 3: Lesson 5 – 6

Lecture Class Discussion Reading: Heuristics and Biases (Page 81 – 87)


  1. Explain how people making a binding decision ahead of time, essentially locking in a choice option now rather than keeping flexibility for the future (CK1)
Lecture Class Discussion Reading: Precommitment: Setting Rationality Aside (151 – 157)


  1. Explain framing effects (CK1)
  2. Understand how marketers are using the framing concepts to promote products (CK1, CK2)

Quiz 4: Lesson 7 – 8

Lecture Class Discussion Reading: Framing: Moving to a Different Perspective (Page 158 – 164)

Interventions, Nudges, and Decisions

  1. Explain how to shape other people’s decision (CK1)
  2. Understand how to use behavioral economics, psychology, and even neuroscience to influence what other people choose (CK2)
  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
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.



  1. Huettel, S. (2014). Behavioral Economics: When Psychology and Economics Collide.


  1. Kahneman, Daniel (2013) Thinking Fast and Slow, Farrar, Straus and Giroux.
  2. Dan Ariely (2008). Predictably Irrational. New York: Harper Collins.
  3. Richard H. Thaler and Cass R, Sunstein (2008). Nudge: Improving Decisions about Health, Wealth, and Happiness. New York: Penguin Group.
  4. Burow, Peter,(2016) Behavioral Economics for Business-2nd Edition, NeuroPower Group.