Behavioral Economics: An Introduction
This semester I was lucky enough to get into a special topic economics elective titled Behavioral Economics. As I’ve mentioned in the past, behavioral economics is one of the fields that I find most fascinating, and as this is the first time the class is being offered, I feel fortunate that I was able to get a seat.
The class is set up mainly in a discussion-based format with certain readings, and different topics, dealing with the field each week. I would love to share my newfound knowledge, so I’ve decided to briefly recap what I have been learning each week. Think of it as a mini crash-course in behavioral economics that you don’t even have to leave your computer for!
This first week of class served mainly as an introduction to behavioral economics. A quick background to economics: When economics first came to be, psychology hadn’t yet become a recognized field of study, though many prominent economists at the time moonlighted as some of the first psychologists. The two fields grew together for a time, until the neoclassical revolution began, when economists felt psychology was too shaky a foundation and wanted economics to become more of a natural science.
One important concept that economics presents is that people are represented as being rational individuals, making choices that will always benefit themselves. This composite person used in economics is known as the “Economic Man.” However, more recently, economists have realized that people act in strange, irrational ways and wanted to know more, thus behavioral economics came to be.
Behavioral economics is a sort of blend between economics and psychology, being used to study behavior. While this field mainly relies on experiments to gather data, it differs from psychological experiments in several ways:
- Incentives – Behavioral economics experiments usually involve some sort of incentive, usually financial. This attempts to remove any indifference in the subject and keep them focused on the task at hand. It also helps reduce noise in the data.
- Repetition – In experiments, subjects will be asked the same exact question in the same exact way several times. This gives the subject the ability to learn about the structure of the experiment.
- Truth – Many psychology experiments rely on deception, but by being honest about the intentions of the experiment, subjects in economics experiments will focus on what they are there to do, rather than trying to “find the catch” the entire time.
Now you have a basic understanding and introduction to behavioral economics. Check back next week when we start getting into the really interesting stuff!