B CUSP 115
Addresses an important social issue through an interdisciplinary perspective, continues to build creative and critical skills, and focuses on the relationship between the individual and society. Offered: W.
Motivation, Money, and Markets
Much of economic theory and economic policy is based on assumptions about human behavior. In particular, how do people behave in response to economic incentives? From the very beginnings of formal economic analysis Adam Smith proposed that people respond to these incentives based on their self interest. This idea was later modified to the hypothesis that people respond rationally rather than emotionally to when confronted with an economic choice. While the assumption of rational self interest has been questioned by political economists from Karl Marx to John Maynard Keynes, it has become a foundation for economic theory and current public policy. Most recently it is being questioned by a group of academic researchers known as behavioral economists. Behavioral economics is an emerging field of study that combines psychology and economics. We will focus on the recent debate as it plays out in popular press and books such as Freakonomics and Predictably Irrational and in the context of the 2008 financial meltdown. We will address ourselves to such questions as: • How can an understanding of human psychology improve economic policy? • Why do we repeatedly make the same mistakes when we make our choices? • How do our expectations influence our actual opinions and decisions? • What are the common economic mistakes that people make in their daily lives? • How does the assumption of rational self interest contribute to financial bubbles? • How do we design policies to encourage people to take charge of their financial lives? • How can we construct incentive systems to encourage excellence in public education? • How should we design savings systems so people can have comfortable retirements?
Student learning goals
Students should be able to discuss and analyze the underlying assumptions of mainstream economic analysis individual regarding behavior and how they lead to the efficient market hypothesis.
Students should be able to discuss and analyze the critiques of the mainstream assumptions regarding human behavior and how these critiques call into question the efficient market hypothesis.
Students should be able to discuss and analyze the relationship between theory, institutions, policy and social outcomes.
General method of instruction
Class will be a mix of lecture, discussion, class exercises, thought experiments, and in class experiments.
There are no prerequisites. However a general interest in how our modern economic system works (and doesn't work) will be helpful.
Class assignments and grading
Reflection papers, quizzes, short research papers and presentations.