Experimental Economics: documenting irrational choices and preferences

Course Level: 
Doctoral
Campus: 
Budapest
Course Open to: 
Students on-site
Academic Year: 
2021-2022
Term: 
Fall
US Credits: 
2
ECTS Credits: 
4
Course Code: 
CDCR6060
Course Description: 

In this course, we will read and discuss papers about the psychological
factors that underpin decision-making, focusing on decisions taken when
interacting with others.
The course will have three parts:
1. An introduction to decision theory and behavioural economics
Behavioral game theory is a subfield of behavioral economics, in which
behavior is analyzed in terms of the costs and benefits it brings about.
We will dedicate the first sessions to explaining the framework and its
key notions, such as ‘bounded rationality’ and ‘cognitive biases’.
2. Studies on cognitive biases

We will review the experimental literature documenting some of the
most important cognitive biases: decoy effect, sunk cost effect,
ambiguity aversion.
3. Studies on other-regarding preferences and strategic decision making
We will then look at choices in strategic contexts: that’s where game
theory is relevant, because the benefits of the choices made also
depend on what others’ choose. We will see that these decision
depend on social preferences, which we will attempt to specify.
Also, the decisions taken when interacting with others also depend on
how others are predicted to behave. We will investigate how these
predictions are formed and their effects on decision-making.

Learning Outcomes: 

Learning outcome
• Acquaintance with the problems and methods of experimental
economics, especially concerning
- the study of pro-social motives
- bounded rationality (biases and adaptive heuristics)
• Knowledge about the psychological bases of economic behaviour
At the end of the course, students should master a number of concepts and
models used in decision sciences and game theory, such as ‘preference’,
utility function, maximisation of expected utility, and Nash equilibrium. They
will know about a number of findings in behavioural economics: the most
famous biases, such as the ‘sunk cost fallacy’, and theories of social
preferences, such as inequity aversion. Last, they will become familiar with
the experimental method used in experimental and behavioural economics.
Course requirements
• Two one-page essays: the essays will consist of an empirical
hypothesis about motivation and/or cognition at work when taking a
decision, and an experimental protocol (or the description of a
computer simulation, or a mathematical model) meant to test the
hypothesis.
50% of the final grade
• Some coursework: solving some exercises in decision and game
theory.
20% of the final grade.
• Articles presentations: students will be asked to write hands-out and
stimulate discussion during two sessions with discussion format.
20% of the final grade.
• Participation to the class: students are expected to actively engage
with the questions raised in the course, challenge or defend the
psychological theories presented in the readings, question the
methodology, etc.
10% of the final grade.
Homework due: Exercises will be due the week after they are given. The two
one-page essays should be handed in before week 12.

Assessment: 

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Prerequisites: 

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