Behavioral Economics

Behavioral Economics

Undergraduate textbook under contract with MIT Press (in progress)

Please contact me if you are interested in using chapters in class or providing input!

The goal of this book is to provide an approachable, precise introduction to the field that emphasizes the iterative process of developing and testing theory to produce descriptive models of human behavior. To motivate the theory, students will be introduced to the methodology of experimental economics and the book will clearly describe specific series of experiments that lead to the establishment of behavioral regularities and the refinement of economic models. Instructors will be provided with protocols and code to conduct the core experiments in each chapter as classroom demonstrations, complete with discussion topics to guide the class conversations. In addition to conceptual explanations of behavioral regularities and core concepts, students will see how to formalize these insights with mathematical models that, in turn, generate testable predictions. The objective is to demonstrate that behavioral economics is not a laundry list of behavioral anomalies or punchy results; nor is it about subverting economic theory. Instead, the goal of the field is to systematically develop more accurate models of human behavior that can be incorporated into the framework of standard economic theory.

The intended audience is intermediate and advanced undergraduate students who have had some exposure to economics (such as a principles course). The book will use notation and algebra to precisely define core concepts and model decision makers’ motives and behavior but will not require any specific mathematical preparation beyond high school algebra. The book could also be used as the primary or supplemental textbook in a graduate course on behavioral or experimental economics.

The book will pursue the following objectives, which collectively distinguish it from other behavioral economics textbooks on the market:

1. Formal behavioral models. The book will focus on how behavioral insights are incorporated into standard economic theory and used to make predictions. For example, students will learn how inequality aversion, desire to adhere to social norms, or preferences over beliefs can be incorporated into agents’ utility functions, and how quantal response equilibrium is used to predict behavior when players make mistakes and anticipate the mistakes of others. Instead of learning about reference dependence in general, they will be exposed to specific models of expectations-based loss aversion.

2. The interplay between theory and empirics. The behavioral models will be motivated by experimental and other empirical results. In each chapter, students will be introduced to core lab and field experiments in sufficient detail to allow them to understand the participants’ experience and interpret the data themselves. Wherever possible, we will focus on series of related experiments, to demonstrate how experiments build upon one another and that the field advances through an iterative process, in which theory generates predictions that can be tested with experiments and, in turn, experimental results inform updated theory.

3. Precision and clarity. While the book will aim to strike a conversational, approachable tone, it will also favor precision and simplicity. All fundamental concepts and terms will be formally defined, so that readers don't need to intuit the meaning. To help students keep track of key concepts without becoming overwhelmed, each chapter will end with a list of terms and summary of main ideas. 

4. Experimental protocols for classroom demonstrations. Each chapter will include experimental protocols for the instructor to run between two and five foundational experiments in class. This includes the materials to conduct the game in class using written instructions, pencils, and worksheets, oTree codes for instructors who prefer to conduct the experiments online, and an instructor’s guide that contains a brief description of the experiment, typical results, and discussion topics.

5. Exercises. Each chapter will contain a series of written exercises, so that instructors do not need to develop their own problem sets for the course. Solutions will be provided in the instructors’ manual.

Table of Contents

Optional online chapter: Economics as an Experimental Science (Introduction to the Methodology of Experimental Economics)