ECON 4494W — Assignment 2

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Our next speaker is Mike Shor, who will talk about behavioral economics.

You are all more-or-less familiar with the assumption in economics that people act "rationally." This assumption is different from the way psychologists think about behavior, and in this sense the mainstream of economics has diverged from psychology. The field of behavioral economics takes a more experimental and psychological approach to rationality, however, and it has uncovered a number of "anomalies" -- situations in which people appear to act differently from the way the economic assumption of rationality would suggest.

Your assignment:

1. Present the mainstream economics assumption of rationality. An intermediate microeconomics textbook -- the part about indifference curves -- might be a good place to look.

2. Discuss one or more "anomalies" that behavioral economists have identified. (Try some of these out on your friends if you want.)

3. Make an argument about whether (or under which circumstances) such anomalies matter for the predictions of economic theory.

Here are some reading to get you started.

Due: February 16.