Teaching Behavioural Economics

Happy New Year! I hope everyone has been enjoying their holidays.

For my first post of 2014, I wanted to bring up the explosion of research on behavioural economics in recent years. Behavioural economists use psychology’s deeper understanding of human behaviour to inform economic models, theories, and policy development. Traditional assumptions such as unbounded rationality and the axioms of consumer preference are relaxed to allow for biases and heuristics including endowment effects, loss aversion, and poor mental statistics. Behavioural finance is similarly concerned with deviations from rational markets, and Robert Shiller was recently awarded a Nobel prize for this research in this field.

As a research area, one of the drawcards of behavioural economics is its generalisability. Hypotheses can be tested using a variety of data sets covering everything from laboratory experiments to professional sporting competitions (think patterns in athlete or team performance over time), and conclusions tend not to be restricted to one locality. Behavioural economics is gaining credibility outside of academia too – in the broader business environment and in public policy making.  

The question I wanted to pose in this blog is – what place do behavioural economics and behavioural finance have in undergraduate teaching? Would you like to see these issues covered in an elective course (as is the case in some larger economics departments) or would you prefer academics to present traditional models alongside the new research?

Personally, I think students will increasingly be exposed to criticism of neoclassical models regardless as text books and learning resources are updated with the latest research. An elective course (or several) would certainly attract more serious interest in the area and help to refine student thinking, but would be an issue in many departments simply due to limited resources. With so many anomalies in human behaviour to explore, I think this area would be great for an honours or PhD thesis (I am biased though, as my honours thesis was in behavioural economics). J