Lecture

Beyond Rationality: Behavioral Economics

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Description

This lecture explores choice models with latent variables, going beyond rationality to understand human decision-making. Through examples like pain tolerance tests and subscription choices, the instructor delves into concepts like the decoy effect and irrational decision patterns.

In MOOC

Selected Topics on Discrete Choice

The logit model is the workhorse of choice modelers. But it has some limitations. In particular, some assumptions used to derive it may not be consistent with the behavioral reality. It may lead to erroneous forecast. We illustrated using the so-called "red bud-blue bus" paradox, and Multivariate Extre Value models, addressing some of these issues, are introduced. The sampling procedure used to collect choice data has a critical impact on the model estimation procedure. We introduce classical sampling proc

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Related concepts (32)

Behavioral economics

Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors in the decisions of individuals or institutions, and how these decisions deviate from those implied by classical economic theory. Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience and microeconomic theory. The study of behavioral economics includes how market decisions are made and the mechanisms that drive public opinion.

Decision-making

In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either rational or irrational. The decision-making process is a reasoning process based on assumptions of values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action.

Neoclassical economics

Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good or service is determined through a hypothetical maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production.

Rational choice theory

Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postulates that an individual will perform a cost-benefit analysis to determine whether an option is right for them. It also suggests that an individual's self-driven rational actions will help better the overall economy. Rational choice theory looks at three concepts: rational actors, self interest and the invisible hand.

Heterodox economics

Heterodox economics is any economic thought or theory that contrasts with orthodox schools of economic thought, or that may be beyond neoclassical economics. These include institutional, evolutionary, feminist, social, post-Keynesian (not to be confused with New Keynesian), ecological, Austrian, complexity, Marxian, socialist, and anarchist economics. Economics may be called orthodox or conventional economics by its critics.

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