Over the last 30 years, psychologists and economists have joined forces to study how people process information and actually make decisions, rather than how they would make decisions if they were fully rational and selfish. This new collaborative field, behavioral economics, has provided an understanding of how people’s decisions deviate from “optimal” choices and the consequences of such deviations for consumers, managers, firms, and policy.
This joint concentration between the Operations, Information, and Decisions Department and the Business Economics and Public Policy Department explores the behavioral aspects of economics and decision making. The concentration provides students with the opportunity to develop an understanding of: (a) the rational actor model, (b) modifications to that model that reflect the psychology of human behavior, and (c) implications of those modifications for decision-makers, markets, and public policy.
Which course can help students determine if this concentration is right for them?
Two courses are required for all Behavioral Economics concentrators, OIDD 290: Decision Processes and BEPP 220: 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 290 gives more insight into the psychology while BEPP 220 gives more insight into the economics.
What other resources/experiences can help determine if this concentration is the right fit?
- 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 239: 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 250, 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 250, the more they might appreciate the Behavioral Economics concentration.
What skills or knowledge will a student gain from this 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).
What careers or industries is this concentration a good fit for?
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.
Student Profile: Cameron Strong
Why did you choose this concentration?
I chose Behavioral Economics because I love how you learn about natural biases and how to control for them with policy and strategy. It is fascinating to see how economic models are thwarted by people’s seemingly random “mistakes,” which turn out to be very predictable biases.
What was your favorite course in this concentration and why?
OIDD 291: Negotiations gave me an application of all that I have learned in the economics classes related to the concentration. It was really useful to see how these biases can play into even the smallest exchanges! I also had a great time participating in negotiations throughout the semester—it was a very hands-on course.
What course did you choose to take first in this concentration and why?
I first took PSYC 265: Behavioral Economics in Psychology. I was in this course for my minor and loved the material that was covered. It was at that point that I found the Behavioral Economics concentration and decided to further pursue the subject.
What advice would you give to a student who is considering this concentration?
I have loved the classes in this concentration, but they are all very different! Some require advanced calculus knowledge while others require learning how to read people. It’s important to know that you are comfortable being uncomfortable since your classes will seem unrelated at first!
Do you have more than one concentration? If so, what are they and why?
I have concentrations in Behavioral Economics, Finance, and OIDD (Decision Processes). I love the variety of these classes and the balance it gives me in terms of left-brain and right-brain subjects. Additionally, I have found that these are the courses I enjoy the most at Penn, making the concentration choice a no-brainer.
What concentration-related skills have you used during internships or other work experiences?
I’ve found that since I love what I’m learning, I’m able to bring it into almost any situation. This past summer, we picked a partnership based on our prediction of human behavior—maximizing the positive returns by understanding people! It’s also been extremely helpful in interviews because if you enjoy the classes you are taking, it isn’t too difficult to answer questions about your studies.