Behavioral Economics

Two courses are required for all Behavioral Economics concentrators, OIDD 2900: Decision Processes and BEPP 2200: Behavioral Economics, Markets and Public Policy.  Either provides a great sense of what the concentration offers and whether it’s a good fit for a particular student. Sometimes behavioral economics is referred to as “psychology and economics,” and OIDD 2900 gives more insight into the psychology while BEPP 2200 gives more insight into the economics.

• Read books like Nudge, Scarcity, Predictably Irrational, and/or The Winner’s Curse.  All are very readable and provide insight into the subject matter, how behavioral economists think, areas of application, and the essential tools of the trade.
• One way to think about the concentration is that it offers an extended structure for gaining insight into behavioral finance.  A student who likes FNCE 2390: Behavioral Finance and either doesn’t want to concentrate in finance or is interested in adding a second concentration, should consider behavioral economics.
• Another way to think about the concentration is in relation to BEPP 2500, which can be a useful diagnostic for students who are trying to decide between the Behavioral Economics concentration and the Decision Processes track of the OID concentration.  The key difference between the two is that economists think more about equilibrium, about what happens when competing and strategically interacting firms and consumers trade via markets and contracts.  By contrast, psychologists focus more on the details of the individual decision process.  So the more students appreciated BEPP 2500, the more they might appreciate the Behavioral Economics concentration.

Students will learn how to:

• Overcome common biases in their own decision-making
• Design new products that consumers and investors will value and benefit from, in light of their realistic (and hence complicated!) psychology
• Constructively analyze and influence public policy that is increasingly responsive around the world to behavioral economics

Another way to put it is that the concentration trains students to detect known and unknown decision-making biases; correct for them in one’s own decision-making; improve market strategies in light of them; and contribute positively to policy (from inside or outside government).

Behavioral economics and behavioral finance are having a major impact on how we think about markets for consumer goods and services, including consumer finance markets.  Anyone interested in working in those markets, investing in those markets, or analyzing those markets will need to know some behavioral economics in order to be on the cutting edge.

Here are three examples:

• Evive Health provides services to firms who seek to improve their employees’ health and thereby reduce absenteeism and health-insurance-related costs.  Insights from behavioral economics can help in the design of their interventions (e.g., flu shot reminders).
• Ideas42 is a nonprofit behavioral economics consulting firm.  Among the dozen clients/partners are Opower, the Citi Foundation, and the Oklahoma Medicaid program.
• The Behavioural Insights Team is a high-level group in the UK government that has been running RCTs inspired by behavioral economics in order to improve service provision.