Berg Syllabus for ECO 3335, Spring 2008

Economic Psychology
Section 001, Call number 13471, meets TR 1:00 to 2:15pm in JO3.516

Instructor: Dr. Nathan Berg, Associate Professor of Economics

Email: prof.berg@gmail.com
Phone: 972.883.2088
Office: Green Hall 2.804

Office Hours: By appointment. Please email me to schedule an appointment. If you’d like

to ask a question by email, that’s fine. If you’re asking for an appointment, I’d like you to
suggest a time (or several possible times) in your email.

Textbook: There is no required textbook. You are responsible for required reading
assignments, indicated below by the command “Read … .” Many of the required
readings can be found online. Three chapters from the following intermediate
microeconomics textbook are required: Microeconomics and Behavior, 7th ed, by Robert
Frank (McGraw Hill).

Grading
100 points can be earned during the semester from three primary sources:

(1) Presentation, quizzes, participation (20)

You will make a 10- minute presentation on one of the readings below,
communicating at least one of its essential points. Try to present in the manner of
your ideal instructor. Before you present, you should email me two or three test
questions that provide a good measure of whether a student understands the essential
point you are presenting. Your presentation should cover these test questions, and
you should do your best to explain how to solve the test questions you write. You
will be graded on the content and organization of your presentation, and on how
knowledgeably you handle questions. Style and substance are inseparable,
complementing each other in virtually every aspect of high-quality public speaking.
You will not receive a numerical score for your presentation until all presentations are
complete, which will be very late in the semester. You may earn extra points by
successfully answering questions on pop quizzes, if any, and for the quality of
questions you pose to other presenters. Please don’t take this as an invitation to talk
excessively without sincerity of purpose.

(2) Exam 1 (30)

(3) Exam 2 (50)

Final semester grades will be based on the following scale: 100 to 93 points earn an A; 92
to 90 points an A-; 89-87 points a B+; 86 to 83 points a B; 82 to 75 points a B-; 74 to 70
points a C+; 69 to 65 points a C; 64 to 60 points a C-; 59 to 50 points a D; and 49 or
fewer points earn an F.

Course Plan
Note: the plan is tentative and subject to change, allowing us some flexibility to take
more time, as needed, to more fully deal with challenging material or more deeply
pursue particular interests of individual students.

Tuesday, Jan 8 Introduction to the rational consumer + first-day questionnaire

Thursday, Jan 10 Cost-benefit decision-making model and rational preference

orderings + Presentation sign-up
Read Robert Frank, chapter 1, pp 1-23
Read Kahneman, Daniel, Jack Knetsch and Richard Thaler. "The Endowment
Effect, Loss Aversion, and Status Quo Bias." Journal of Economic Perspectives 5(1),
(1991):193-206.

Tuesday, Jan 15 Economics of information and choice under uncertainty

Read Robert Frank, chapter 6, pp 169-197
Read Thaler, Richard and Amos Tversky. " Preference Reversals." Journal of
Economic Perspectives 4(2), (1990): 201-211.

Thursday, Jan 17 Economics of information and choice under uncertainty

Read Rabin, Matthew and Richard Thaler. "Risk Aversion." Journal of Economic
Perspectives 15(1), (2001): 219-232.
Read Siegel, Jeremy and Richard Thaler. "The Equity Premium Puzzle" Journal
of Economic Perspectives 11(1), (1997): 191-200.

Tuesday, Jan 22 Behavioral Game Theory

Read Colin Camerer, Behavioral Game Theory: Experiments on Strategic
Interaction, Princeton, 2003

Thursday, Jan 24 Auctions and the winner’s curse

Read Frank, chapter 6 appendix, pp 199-209
Read Thaler, Richard. "The Winners Curse." Journal of Economic Perspectives
2(1), (1988):191-202.

Tuesday, Jan 29 Allais Paradox and Ellsberg Paradox

Read Ellsberg, D. (1961) " Risk, Ambiguity, and the Savage Axioms" Quarterly
Journal of Economics 75: 643-669.

Thursday, Jan 31 Other-regarding behavior: Dictator game and Ultimatum game

Read Robert Frank, Chapter 7, pp241-267
Read Dawes, Robyn and Richard Thaler. "Cooperation." Journal of Economic
Perspectives 2(3), (1988):187- 197.

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 Read Thaler, Richard. "The Ultimatum Game." Journal of Economic
Perspectives 2(4), (1988): 195-206.

Tuesday, Feb 5 Other-regarding behavior: Dictator game and Ultimatum game 2

Read Camerer, Colin and Richard Thaler. "Ultimatums, Dictators and Manners"
Journal of Economic Perspectives 9(2), (1995):209-219.
Read Henrich, Fehr, Boyd, Bowles, Gintis, Camerer, and McElreath. "
Cooperation, Reciprocity and Punishment in Fifteen Small- scale Societies." American
Economic Review 91 (2001): 73-78.

Thursday, Feb 7 Exam Review

Tuesday, Feb 12 Exam

Thursday, Feb 14 Return Exam Cognitive limitations (6 periods)

Read Robert Frank, Chapter 8, pp269-291

Tuesday, Feb 19 Cognitive limitations

Read Tversky, A., and D. Kahneman. " Judgement Under Uncertainty: Heuristics
and Biases." Science 185 (1974): 1124-31.
Read Tversky, A., and D. Kahneman. " The Framing of Decisions and The
Psychology of Choice." Science 211 (1981): 453-8.
[another standard reference is Kahneman, Daniel, and Amos Tversky, eds.
Choices, Values and Frames. Cambridge University Press, 2000. ]

Thursday, Feb 21 Cognitive limitations

Tuesday, Feb 26 Cognitive limitations

Read Loewenstein, George and Richard Thaler. " Intertemporal Choice" Journal
of Economic Perspectives 3(4) (1989): 181-193.

Thursday, Feb 28 Cognitive limitations

Read Todd, P. M., & Gigerenzer, G. (2000). Précis of Simple Heuristics That
Make Us Smart. Behavioral and Brain Sciences, 23, 727-741.

Tuesday, March 4 Bounded Rationality

Read Gerd Gigerenzer (2004), “Fast and Frugal Heuristics: Tools of Bounded
Rationality.” in D. Koehler and N. Harvey, eds., Handbook of judgment and decision
making. Oxford: Blackwell. Gigerenzer, G. (2004).

Thursday, March 6 Herbert Simon and Bounded Rationality

Read Simon, Herbert, “ A Behavioral Model of Rational Choice", 1955, QJE.
Read Simon, Herbert, “Rational Choice and the Structure of the Environment",
1956, Psychological Review.

Tuesday, March 11 NO CLASS, Spring Break

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Thursday, March 13 NO CLASS, Spring Break

Tuesday, March 18 Behavioral Finance1

Read Thaler, Richard. "The January Effect." Journal of Economic Perspective
1(1), (1987): 197-201.
Read Thaler, Richard. " Seasonal Movements in Security Prices II: Weekends,
Holidays, Turn of the Month and Intra-day Effects." Journal of Economic Perspectives
1(2), (1987):169-177.

Thursday, March 20 Behavioral Finance 2

Read De Bondt, Werner and Richard Thaler . " A Mean Reverting Walk Down
Wall Street." Journal of Economic Perspectives 3(1), (1989): 189-202.
Read Thaler, Richard. " Saving, Fungibility, and Mental Accounts." Journal of
Economic Perspectives 4(1), (1990):193-205.

Tuesday, March 25 Behavioral Finance 3

Read Froot, Ken and Richard Thaler. "Foreign Exchange." Journal of Economic
Perspectives 4(3), (1990): 179-192.
Read Lee, Charles, Adrei Schleifer and Richard Thaler. "Closed End Mutual
Funds." Journal of Economic Perspectives 4(4), (1990):153-164.

[A standard behavioral finance book you might want to read on your own is:
Shleifer, Andrei. Inefficient Capital Markets: An Introduction to Behavioral Finance.
Oxford UP, 2000. Another good one is Shiller, R. Irrational Exuberance. Princeton U.
Press, 2000.]

Thursday, March 27 Psychology and Markets

Read Thaler, Richard and Ziemba, William. “ Parimutuel Betting Markets:
Racetracks and Lotteries." Journal of Economic Perspectives 2(2), (1988):161-174.
Read Thaler, Richard. "Interindustry Wage Differentials." Journal of Economic
Perspectives 3(2), (1989): 181- 193.

Tuesday, April 1 Public Finance, Public Goods and Psychology

Read Hines, James and Richard Thaler. "The Flypaper Effect." Journal of
Economic Perspectives 9(4), (1995): 217-226.
Read Thaler, T., and C. Sunstein. " Libertarian Paternalism." The American
Economic Review 93, no. 2 (2003): 175-179.

Thursday, April 3 Neuroeconomics

Read Camerer, Loewenstein, and Prelec. " How Neuroscience Can Inform
Economics. " Journal of Economic Literature Vol. XLIII (March 2005), pp. 9–64

Tuesday, April 8 Happiness

Thursday, April 10 Econophysics

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Tuesday, April 15 Reserve*

Thursday, April 17 Reserve*

Tuesday, April 22 Review for Exam 2

Thursday, April 24 Exam 2, Last Day of Class

Many of the readings listed above were originally published in the Journal of Economic
Perspectives and can be found in the edited collection of papers: Thaler, Richard. The
Winner's Curse: Paradoxes and Anomalies of Economic Life. Princeton, N. J.: Princeton
University Press, 1994.

*Reserved days are not empty days. There will be lectures and possibly
presentations. We may use these extra days as opportunities to catch up if we
decide more time is needed for material covered earlier in the semester.
Alternatively, new material may be introduced from topics such as: New York City
cab drivers, limits of logic, normative behavioral economics, and social identity in
economics.

Schedule Problems
If you have an emergency or a valid conflict and provide me with written documentation,
I will consider granting an extension or providing an alternative assignment. Otherwise, I
do not want to extend any deadlines or permit schedule changes. Late papers will be
penalized up to 10 percentage points per day. Papers that are several days late may not be
accepted at all. I want you to succeed in this class. Please stay organized and work well
ahead of deadline.

Incompletes
There will be no grades of incomplete awarded without appropriate documentation.

Scholastic Dishonesty
Scholastic dishonesty includes, but is not limited to, cheating on assignments or
examinations, plagiarizing (misrepresenting as your own work any part of work done by
another), submitting the same assignment, or substantially similar assignments to meet
the requirements of more than one course without the approval of all instructors,
depriving another student of necessary course materials, or interfering with another
student's work. If in doubt about the ethics of your actions, consult the Catalog to see the
University's policy. Scholastic dishonesty will not be tolerated. Students are responsible
for knowing what constitutes scholastic dishonesty and its consequences (see
http://www.utdallas.edu/student/slife/chapter49.html). If you have any doubts, contact me
before you turn in your assignments.

Accessibility (for students with disabilities)

If you have a condition that requires accommodation in this course, please speak with me

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after class or in office hours during the first week of class. I will be happy to make
appropriate accommodations provided timely notice is received and the arrangement is
consistent with any recommendations from Disability Services, when applicable.
Disability Services can be reached at 883-2098. The syllabus and other course materials
can be made available in alternative formats.

Attendance Policy
There is no explicit attendance requirement for this course. However, if students expect
to do well, regular attendance is necessary. Assignments may change, and adjustments to
the exam schedule may occur. Students who miss deadlines or fail to complete an
assignment because they did not hear scheduling announcements in class will not be
excused. Please do not ask me for notes.

Disclaimer:
This syllabus is tentative and can be changed. All changes will be announced in class.