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:

• Varian, H.R., 2014. Intermediate microeconomics with calculus. WW Norton & Company. [IM] (available on amazon) You can also use Varian, H.R., 2019. Intermediate microeconomics: A modern approach, 9th ed. WW Norton & Company. (available on amazon) The content is the same, most of the math is just delegated to chapter appendices.
• Angner, E., 2016. A course in behavioral economics. 2nd ed.. Macmillan International Higher Education. [BE] (available opn amazon)

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

Instructor Information:

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

You can always contact me via email or twitter. For meetings 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:

Solutions to problem sets must be submitted by the beginning of the respective class. Late submission will lead to a penalty on the grade for the problem sets.

You are allowed to bring a dictionary, a pocket calculator, and a single-sided page DIN A4 with hand-written notes to the final exam.

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.

Topics and Reading Assignments

Session 1

• Introduction
• Rational Choice under Certainty: Constraints and Preferences
  • required: IM: 2 and 3

Session 2

• Rational Choice under Certainty: Utility and Choice
  • required: IM: 4 and 5
  • recommended: BE: 1 and 2 Angner & Loewenstein (2012), “Behavioral economics,” in Mäki, ed., Handbook of the Philosophy of Science: Philosophy of Economics, Amsterdam: Elsevier, pp. 641–690

Session 3

• Revealed Preference
  • required: IM: 7
• Decision Making under Certainty
  • 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 4

• Probability Judgment

  • required: BE: 4

• Judgment under Risk and Uncertainty

  • 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
  • required: IM: 12
  • recommended: BE: 6

Session 6

• Decision Making under Risk and Uncertainty
  • 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

• (Rational) Intertemporal Choice
  • required: IM: 10

Session 8

• The Discounted Utility Model

  • 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

  • required: BE: 9
    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 9

• Game Theory
  • required: IM: 29 and 30
  • recommended: BE: 10

Session 10

• Behavioral Game Theory
  • 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
  • required: IM: 32 and 33

Session 12

• Welfare
  • 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

• Asymmetric Information
  • required: IM: 38

Session 14

Review

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.

Upload you solutions to this pCloud folder [Click Here!] Please use PDF or plain text for your uploads, or bring a hard copy to class.

If you do not have a pCloud account yet: Get one for free!