Intermediate Microeconomics

preliminary — subject to changes

Course Description

Optimal economic decision making on the level of individual economic units, in-depth study of (optimal) consumer decision-making, externalities, market failure, and behavioral economics.

Topics include, but are not limited to, choice under certainty, decisions under risk and uncertainty, intertemporal choice, market failure, externalities, and asymmetric information.

Course Objectives

The course will enable students to gain an in-depth understanding of individual decision making in the economy.

Course Materials

Required:

The course will follow:
Angner, E., 2016. A course in behavioral economics. 2nd ed.. Macmillan International Higher Education. [BE]
and
Varian, H.R., 2014. Intermediate microeconomics with calculus. WW Norton & Company. [IM]

The required and recommended readings from these two texts are indictaed below by “BE: chapter” and “IM: chapter”, respectively.

Course Requirements:

Students must read the corresponding chapters of the textbook before each session. Reading the economic and political press will also be helpful.

I recommend that you try to solve the chapter problems in preparation and review of each class session.

Class meets each Monday at 12:15 till 14:45. Please bring a hard copy of the problems we want to discuss (see below) to each class.

Electronic devices, i.e. laptops, are discouraged from use during class sessions. See http://economicscience.net/content/laptop-use/ for the reasons.

Instructor Information:

Prof. Dr. Dennis A. V. Dittrich
dennis.dittrich@touroberlin.de
http://economicscience.net

You can always contact me via email. For meetings in my office appointments can be arranged through the my webpage at: http://economicscience.net/content/book-appointment.

Updated information, links to the literature, additional materials, etc. can be found on my webpage as well.

Grading Guidelines:

Grading ComponentWeight
Quizzes & Problem Sets50%
Final Examination50%

Workload

A typical 3 credit course requires 150 hours of your time. The table below identifies how I expect those 150 hours will be allocated. While you do not receive direct marks for reading, reading will affect your class participation mark (your ability to participate in class discussions and activities) and your final exam mark.

ActivityTime
Class Time (3 hours / week)45 hours
Reading (3 hours / week)45 hours
Preparation, Problem Sets, and Review (4 hours / week)60 hours

Topics and Reading Assignments

Session 1

  • Introduction
  • Rational Choice under Certainty
    Readings
    • required: BE: 1 and 2
    • recommended: IM: 2–5
      Angner & Loewenstein (2012), “Behavioral economics,” in Mäki, ed., Handbook of the Philosophy of Science: Philosophy of Economics, Amsterdam: Elsevier, pp. 641–690

Session 2

  • Decision Making under Certainty
    Readings
    • required: BE: 3
    • recommended:
      Frank (2005), “The Opportunity Cost of Economics Education,” New York Times, Sept. 1, p. C2.
      Arkes & Blumer (1985), “The psychology of sunk cost,” Organizational Behavior and Human Decision Processes, 35 (1), 124–140
      Huber, Payne, & Puto (1982), “Adding asymmetrically dominated alternatives: Violations of regularity and the similarity hypothesis,” The Journal of Consumer Research, 9(1), 90–98.
      Kahneman, Knetsch, & Thaler (1991), “Anomalies: The endowment effect, loss aversion, and status quo bias,” The Journal of Economic Perspectives, 5 (1), 193–206
      Section titled “Anchoring and Adjustment” from Tversky & Kahneman (1974), “Judgment under uncertainty: Heuristics and biases,” Science, 185 (4157), 1124–1131
      Ariely, Loewenstein, & Prelec (2003), “‘Coherent arbitrariness’: Stable demand curves without stable preferences,” The Quarterly Journal of Economics, 118 (1), 73–105

Session 3

  • Probability Judgment
    Readings
    • required: BE: 4

Session 4

  • Judgment under Risk and Uncertainty
    Readings
    • required: BE: 5
    • recommended:
      Keren & Lewis (1994), “The two fallacies of gamblers: Type I and Type II,” Organizational Behavior and Human Decision Processes, 60 (1), 75–89.
      Sections titled “Representativeness” and “Availability” from Tversky & Kahneman (1974), op. cit.
      Tversky & Kahneman (1983), “Extensional versus intuitive reasoning: The conjunction fallacy in probability judgment,” Psychological Review, 90 (4), 293–315
      Bar-Hillel (1980), “The base-rate fallacy in probability judgments,” Acta Psychologica, 44 (3), 211–233
      Nickerson (1998), “Confirmation bias: A ubiquitous phenomenon in many guises,” Review of General Psychology, 2 (2), 175–200
      Angner (2006), “Economists as experts: Overconfidence in theory and practice,” Journal of Economic Methodology, 13 (1), 1–24.

Session 5

  • Rational Choice under Risk and Uncertainty
    Readings
    • required: BE: 6
    • recommended: IM: 12 and 13

Session 6

  • Decision Making under Risk and Uncertainty
    Readings
    • required: BE: 7
    • recommended:
      Sections I–V of Tversky & Kahneman (1986), “Rational choice and the framing of decisions,” The Journal of Business, 59 (4, Pt. 2), S251-S278
      Thaler (1985), “Mental accounting and consumer choice,” Marketing Science, 27 (1), 15–25
      English summary of Allais (1953), “Le comportement de l’homme rationnel devant le risque: Critique des postulats et axiomes de l’école americaine,” Econometrica, 21 (4), 503–546
      Ellsberg (1961), “Risk, ambiguity, and the Savage axioms,” The Quarterly Journal of Economics, 75 (4), 643–669

Session 7

  • The Discounted Utility Model
    Readings
    • required: BE: 8
    • recommended:
      Frederick, Loewenstein, & O’Donoghue (2002), “Time discounting and time preference: A critical review,” Journal of Economic Literature, 40 (2), 351–401
  • Intertemporal Choice
    Readings
    • required: BE: 9
    • recommended: IM: 10
      Ainslie (1975), “Specious reward: A behavioral theory of impulsiveness and impulse control,” Psychological Bulletin, 82 (4), 463–496
      Rabin & O’Donoghue (2000), “The economics of immediate gratification,” Journal of Behavioral Decision Making, 13 (2), 233–250
      Loewenstein & Angner (2003), “Predicting and indulging changing preferences,” in Loewenstein, Read, & Baumeister, eds, Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice, New York: Russell Sage Foundation, pp. 351–391

Session 8

  • Intertemporal Choice

Session 9

  • Game Theory
    Readings
    • required: BE: 10, IM: 29 and 30

Session 10

  • Behavioral Game Theory
    Readings
    • required: BE: 11
    • recommended:
      Chapter 2 and 5 of Camerer (2003), Behavioral Game Theory: Experiments in Strategic Interaction, New York, NY: Russell Sage Foundation
      Dawes & Thaler (1988) “Anomalies: Cooperation,” The Journal of Economic Perspectives, 2 (3), 187–97

Session 11

  • Exchange
    Readings
    • required: IM: 32 and 33

Session 12

  • Welfare
    Readings
    • required: IM: 34 and BE: 12
    • recommended:
      Loewenstein & Haisley (2008) “The economist as therapist: Methodological ramifications of ‘light’ paternalism,” in Caplin & Schotter, eds, The Foundations of Positive and Normative Economics: A Handbook, New York, NY: Oxford University Press, pp. 210-45
      Sunstein (2014), “Nudging: A very short guide,” Journal of Consumer Policy, 37 (4), 583–588.
      Loewenstein & Ubel (2010), “Economics Behaving Badly,” New York Times, July 15, A31

Session 13

  • Externalities
    Readings
    • required: IM: 35

Session 14

  • Asymmetric Information
    Readings
    • required: IM: 38

Session 15

Final

Topics and reading assignments are subject to changes.

Problem sets

We will discuss problems – mostly taken from our textbook – in class. You will find the problems for download in a pCloud folder: here.

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