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Since the 1950s, behavioural economics and ‘orthodox’ economics have operated side-by-side. In pure theory, the descriptive models of decision-making developed by behavioural economists have complemented developments in orthodox theory, especially attempts at generalising expected utility theory undertaken during the 1980s. In empirical work, orthodox and behavioural theory provide complementary explanations for observed human action. Gradually, behavioural economics has taken its place as an accepted research program within mainstream economics. Following Daniel Kahneman’s 2002 Nobel Prize and Richard Thaler and Cass Sunstein’s publication of ‘Nudge’ in 2008, it has exerted growing influence over government policy. It is now essential that economics graduates can demonstrate a familiarity with both orthodox and behavioural economic analysis.

The course introduces behavioural economics in three parts. First, a brief overview of expected utility theory and game theory sets the scene for the emergence of behavioural economics. Second, the growth of behavioural economics is traced through Richard Thaler's, "Misbehaving: The Making of Behavioural Economics". Third, the core of the behavioural economics research program, heuristics and biases, is reviewed through Daniel Kahneman's, "Thinking: Fast and Slow". The course provides students with an opportunity to demonstrate a familiarity with orthodox foundations, the gradual development of behavioural economics and the core findings that constitute the underlying research program.

On successful completion of this course students should be able to:

1. outline the main features of (orthodox) expected utility theory and use the theory to solve basic choice problems under conditions of risk and uncertainty;
2. use game theory concepts, in conjunction with problem solving and critical thinking, to explain strategic decision-making in basic settings;
3. discuss the development of behavioural economics since 1980, including the challenges that confronted its pioneering researchers;
4. identify the major turning points (events or breakthroughs) that enabled behavioural economics to gain a foothold in the mainstream of economics;
5. explain how heuristics introduce biases into decision-making;
6. apply knowledge of heuristics and biases to explain human action and observed outcomes in various settings, including consumer-goods markets and financial markets.