The Foundations of Behavioral Economic Analysis

ISBN : 9780198715528

Sanjit Dhami
1798 Pages
189 x 246 mm
Pub date
Oct 2016
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This is the first definitive introduction to behavioral economics aimed at advanced undergraduate and postgraduate students. Authoritative, cutting edge, yet accessible, it guides the reader through theory and evidence, providing engaging and relevant applications throughout. It is divided into nine parts and 24 chapters: Part I is on behavioral economics of risk, uncertainty, and ambiguity. The evidence against expected utility theory is examined, and the behavioral response is outlined; the best empirically supported theory is prospect theory. Part II considers other-regarding preferences. The evidence from experimental games on human sociality is given, followed by models and applications of inequity aversion, intentions based reciprocity, conditional cooperation, human virtues, and social identity. Part III is on time discounting. It considers the evidence against the exponential discounted utility model and describes several behavioral models such as hyperbolic discounting, attribute based models and the reference time theory. Part IV describes the evidence on classical game theory and considers several models of behavioral game theory, including level-k and cognitive hierarchy models, quantal response equilibrium, and psychological game theory. Part V considers behavioral models of learning that include evolutionary game theory, classical models of learning, experience weighted attraction model, learning direction theory, and stochastic social dynamics. Part VI studies the role of emotions; among other topics it considers projection bias, temptation preferences, happiness economics, and interaction between emotions and cognition. Part VII considers bounded rationality. The three main topics considered are judgment heuristics and biases, mental accounting, and behavioral finance. Part VIII considers behavioral welfare economics; the main topics are soft paternalism, and choice-based measures of welfare. Finally, Part IX gives an abbreviated taster course in neuroeconomics.



Part I: Behavioral Economics of Risk, Uncertainty, and Ambiguity
Introduction to Part I
1 The Evidence on Human Choice under Risk and Uncertainty
2 Behavioral Models of Decision Making
3 Applications of Behavioral Decision Theory
4 Human Behavior Under Ambiguity

Part II: Other-Regarding Preferences
Introduction to Part II
5 The Evidence on Human Sociality
6 Models of Other-Regarding Preferences
7 Human Morality and Social Identity
8 Incentives and Other-Regarding Preferences

Part III: Behavioral Time Discounting
Introduction to Part III
9 The Evidence on Temporal Human Choice
10 Behavioral Models of Time Discounting
11 Applications of Present Biased Preferences

Part IV: Behavioral Game Theory
Introduction to Part IV
12 The Evidence on Strategic Human Choice
13 Models of Behavioral Game Theory

Part V: Behavioral Models of Learning
Introduction to Part V
14 Evolutionary Game Theory
15 Models of Learning
16 Stochastic Social Dynamics
Appendices and Exercises

Part VI: Emotions
Introduction to Part VI
17 Emotions and Human Behavior
18 Interaction Between Emotions and Cognition

Part VII: Bounded Rationality
Introduction to Part VII
19 Judgment Heuristics
20 Mental Accounting
21 Bounded Rationality in Financial Markets

Part VIII: Behavioral Welfare Economics
Introduction to Part VIII
22 Behavioral Welfare Economics Exercises
Part IX: Neuroeconomics
Introduction to Part IX
23 Neuroeconomics
Appendix on Game Theory

Normal form games
A basic taxonomy of some normal form games
Two person zero sum games
Selection criteria among Nash equilibria: Payoff dominance and Risk Dominance
Extensive form games
Games of incomplete information
Correlated equilibrium

About the author: 

Sanjit Dhami is Professor of Economics at the University of Leicester. He studied at the Delhi School of Economics and the University of Toronto for his Masters, MPhil, and PhD degrees in economics. He has previously taught at the Universities of Toronto, Essex, and Newcastle. His research has mainly focused on behavioral economic theory and its applications. He has published on the axiomatic foundations of the various components of prospect theory, behavioral political economy using other-regarding preferences, behavioral time preferences, foundations of behavioral game theory, and applications in tax evasion, stochastic dominance concepts under other-regarding preferences, and in behavioral law and economics.

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