Gary Stanley Becker (1930–2014) was an American economist and professor of economics and sociology at the University of Chicago. Gary Becker received the 1992 Nobel Memorial Prize in Economic Sciences. He showed the degree to which economic reasoning can improve our understanding of (mis)behavior. He illustrated the effectiveness of economic analysis in areas like crime, addiction, marriage, divorce, and addiction, topics we will discuss during the entire course. Becker generated new areas of study and led hundreds of social scientists in innovative, challenging directions.
I am saying that the economic approach provides a valuable unified framework for understanding all human behaviour.
This video is an excerpt from a lecture of Prof. Hugo Mialon titled “The Importance of Being Gary Becker: Economics is Everywhere“.
We can use economic reasoning as a toolkit to shed light on any economic, social or policy issue of interest. We can study how people decisions will change when the set of actions, the set of information, the costs and benefits of different actions will change. We can use economic theory to make predictions that we can test them with real-world and lab data. The economic approach has an enormous scope, and economics could be considerably broadened beyond the subjects traditionally discussed.
But let’s listen to what Gary Becker has to say about his view of rational behavior.
And listen why assuming rationality has important implication for policy.
Please answer the following questions based on Chapter 1 of “The Economic Approach to Human Behavior” by G. Becker and Section 8 of the Introduction of “The new economics of human behaviour” by Tommasi, Ierulli and Becker.
If you want to know more, you can also read Becker, G. S. (1993). Nobel Lecture: The Economic Way of Looking at Behavior. The Journal of Political Economy, 101(3), 385-409.
Bad outcomes in life are often caused not by what we do but by what we do not do. In fact, even when quitting is the better choice, we often hesitate to do it. Think, for instance, about smoking, overspending, procrastinating, etc.
There are several reasons we are often passive and we do not decide:
- Social pressure: they have taught us that quitting is a weak thing to do.
- Sunk costs: the more we invest in something, the more reluctant we are to quit.
- We forget the opportunity costs: We often overlook the fact that, by engaging in one thing, we also forgo the opportunity to do something else.
Listen to the following story of Steven Levitt.
To investigate if we should quit or not, Levitt set up a website on which people faced with a hard decision could flip a virtual coin. After some months, the participants were asked whether they would act upon the coin flip and to gauge their happiness level.
Here a talk of Steven Levitt presenting his paper.
Please answer the following questions based on Heads or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness
Discussion: Listen to the podcast The Upside of Quitting (length: 56:57). Connect to my Zoom on Tuesday, August 11, at 16:15. We will discuss together about what we have seen in this module and about this podcast. Prepare your questions to facilitate our discussion.
Summary of Module 2:
- Economic models can help us understand the world by providing testable predictions.
- Economics is a method and can help us understand the reason behind human (mis)behavior.
- Economists study a variety of behaviors and misbehaviors.
- Misbehavior may result from an action or inaction.
- Economists use creative ways to collect data to answer their research questions.
Suggested movie for tonight: A Beautiful Mind (2002)