390037 SE PhD-VGSE: Behavioral Theory and IO Applications (2019W)

Based largely on a recent survey titled “Behavioral Industrial Organization” that Botond Kőszegi and I wrote for the Handbook of Behavioral Economic, this short course familiarizes students with this quickly developing field of research. Broadly speaking, behavioral industrial organization analyzes the implications of behavioral-economic models of individual decisionmaking for the functioning of markets. To do so, we will introduce and discuss some basic behavioral theories of individual behavior throughout the course as needed. The primary focus of this short course, however, lies on how rational firms exploit consumers tendencies to make systematic mistakes when evaluating contracts or products. But we will also talk about how rational firms respond to consumer preferences that differ from those typically imposed in classical economics, and how this impacts observable market outcomes. In addition, we will touch on how psychological tendencies affect firm behavior – a newly developing subfield. Throughout, we will critically discuss the policy insights that follow from the behavioral-industrial-organization models discussed in class.

Prerequisites: Participants are expected to have a solid (Master-level) background in microeconomic theory, especially game theory and (simple) models of imperfect competition. Basic familiarity with behavioral-economic models of individual decision making is, of course, helpful but not required.

Aims: The course aims to familiarize students with the fast growing subfield of behavioral industrial economics, and give students the ability to critically evaluate research papers and ideas within the field of behavioral economics more generally.

Method: The class is based on a series of lectures. The slides for these lectures will be handed out to students for further self-study of the material.