Unit I

Intro to Prospect Theory – Rational decision making: standard vs behavioral approach. Heuristics and biases. Empirical methods for behavioral economics. Field and lab experiments. Econometrics review. Qualitative methods. Case studies used for real-world understanding.

Unit II

Static and Dynamic Models of Individual Decision-Making – Loss aversion, reference points, status quo. The endowment effect. Present bias and commitment devices. Multiple selves models and their applications to temptation, self-control, procrastination.

Unit III

Applications of Behavioral Economics to Public Policy – Architecture of choice and the nudging Debate. Mental accounting, nudging and applications to savings, microfinance, health, and education. Case studies used for real-world understanding.

Unit IV

Prosocial Preferences and Motivation – Intrinsic vs. extrinsic motivation. Prosocial preferences and altruistic capital. Policies for the accumulation of altruistic capital.

Unit V

Behavioral Game Theory – Behavioral theories of collective decision making: inequity aversion, fairness, reciprocity, guilt aversion, etc. Experimental evidence. Case studies used for real-world understanding.

Prerequisite: Economics for Public Policy

Summary: The course aims to familiarize students with recent advances in psychology and economics and teach them to apply behavioral insights to design better solutions to societal challenges. It focuses on a rigorous application of experimental methodology in various social contexts and shows how the resulting findings can be used to advance policy in such areas as health, education, energy, etc. Behavioral economics deviates from the standard assumption of the economic theory that individuals are rational and self-seeking. Key findings in the field identify ways in which economic agents can systematically behave irrationally or prosocially. These behavioral insights enable us to design “choice architecture”, which nudges individuals to make better decisions and enhance their well-being. At the same time, public policy instruments can be used to transform social preferences to foster higher cooperation, long-term orientation and sustainable economic practices in a society. This course prepares students to understand cutting edge research in the field of behavioral sciences, apply these insights to improve social policy and communicate their ideas in a succinct and compelling way to government agencies, non-profit organizations, and a wider audience.

Course Objectives:

1. Become familiar with cutting-edge research in behavioral economics, public policy, cognitive and social psychology, and other social sciences.
2. Gain deeper understanding of factors that drive individual behavior and learn to devise incentives for behavioral change.
3. Interpret empirical results from academic research papers for a policy audience.
4. Learn behavioral approaches to improving the effectiveness of social interventions and programs across a range of diverse fields.
5. Apply insights from behavioral economics to policy design.

Course Outcomes:

• CO1: Design behavioral policy interventions and devise empirical strategies for testing them.
• CO2: Critically discuss nudging approaches to policy making, including ethical issues involved.
• CO3: Evaluate the scope and directions for policy interventions aimed at transforming social preferences.
• CO4: Summarize the current status of the behavior-proofing of the policies in India and across the world.
• CO5: Learn to apply the principles of game theory and interpret incentives of economic agents in various situations of social cooperation.

Skills:

• Psychological empathy: through studying human behavior, students will cultivate empathy for individuals’ decision-making processes, leading to more compassionate and people-centered policy solutions.
• Interdisciplinary collaboration: students will collaborate across disciplines such as psychology, sociology, and economics, gaining a holistic understanding of human behavior and its implications for public policy.

-Program outcome PO – Course Outcomes CO Mapping

Program Specific Outcomes PSO – Course Objectives – Mapping

Evaluation Pattern

1. Thaler, Richard H., and Cass R. Sunstein (2021). Nudge: The Final Edition. Yale University Press.
2. Ashraf, N., Bandiera, O. and Jack, B.K. (2014). “No margin, no mission? A field experiment on incentives for public service delivery.” Journal of Public Economics 120 (December): 1-17
3. Ashraf, N., Camerer, C. F. and Loewenstein, G. (2005). “Adam Smith, Behavioral Economist.” Journal of Economic Perspectives 19(3): 131–145.
4. Kamenica, E. (2012). “Behavioral Economics and Psychology of Incentives.” Annual Review of Economics 4(1): 427–452.

• Ariely D. (2010) Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions. New York: Harper Perennial.
• Congdon, W. J., Kling, J. R., & Mullainathan, S. (2011). Policy and choice: Public finance through the lens of behavioral economics. Brookings Institution Press
• Kahneman, D. (2013) Thinking, Fast and Slow. New York: Farrar, Strausand.
• Mullainathan, S., Eldar, S. (2013) Scarcity: Why Having Too Little Means so Much. New York: Times Books, Henry Holt and Company.