Economic approach to human behavior

*** Before Module 2, read:

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.

― Becker

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.

Assignment: 

  • Read Chapter 1 of “The Economic Approach to Human Behavior“ by Gary Becker. 
  • Read 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.

Student activity: Please answer the following questions before proceeding.

Add here the link to the questionnaire.

Even when quitting is the better choice, we often hesitate to do it. There are several reasons for this.

  1. social pressure: we have been taught that quitting is a weak thing to do;
  2. sunk costs: the more we invest in something, the more reluctant we are to quit.
  3. we tend to 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.

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, even with their limitations, can help us understand the world.
  • Models can provide testable predictions and guide the empirical research.
  • The economic reasoning can help us understand the reason behind human (mis)behavior and the limits of people’s decisions.

Suggested movie for tonight: A Beautiful Mind (2002)

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