Standard Economic theory

September 17, 2016
Standard economic theory

The module aims to develop students' knowledge and understanding of economic decision making by emphasising how psychological and experimental findings (from the field and laboratory) have shaped contemporary economic models. In particular the students will learn about recent theoretical developments modelling consumer behaviour, especially in relation to preferences and judgements in situations involving risk, uncertainty and time. The module will also broaden students' knowledge of the way models and theories are empirically or experimentally tested. In this respect students will be acquainted with key empirical results from the field of behavioural economics

Principal Learning Outcomes

The course presumes students are familiar with standard economic models predicated on the presence of rational agents. Experiments and empirical findings over the last two or so decades have repeatedly cast doubt on the validity of rational decision makers.

By the end of the module the students will have learned the key theorectical and empirical tools of modern behavioural economics. This knowledge base should enable the students to present a better understanding of economic behaviour. Furthermore the course material should also allow students to develop more plausible models of behaviour that cannot be explained by the standard economic rational agent-based theories.


The syllabus will cover both theory and application of Behavioural Economics. It will typically include topics such as:


1. Prospect Theory - Effect of reference dependent preferences, loss aversion (sometimes called the endowment effect), present bias and social preferences, in the labour, financial and other markets.

2. The relationship between choice utility and subjective well-being

3. Economics of Happiness


1. Addiction - Review the standard rational model of addiction (Becker & Murphy). Effect of time-inconsistency on consumption, internalities and multiple-selves. Illustration of policy interventions and the implications for the setting of taxes on commodities such as alcohol and tobacco.

2. Dishonesty - from incentive compatability where truth telling is induced to dishonesty as an empirical regularity (focus on the work by Dan Ariely) Also report on experiments involving incorrect bills in restaurants - do diners react by notifying the waiter if the mistake is in their favour?

3. Implications for policy - with reference to competition and consumer policies we shall look at the idea of Nudge based policies and contrast these with traditional incentive market-based policies.

The course will have an emphasis on the empirical identification of the different models, but it does not require an advanced econometric knowledge.


Pre or Co-requisites EC202 or EC204 Restrictions Not available to non-final year students on Economics-based degrees. Part-year Availability for Visiting Students Available on a part-year basis at the discretion of the module leader


Assessment Method Coursework (20%) + 2 hour exam (80%) Coursework Details Two class tests (worth 10% each) Exam Timing May/June

Exam Rubric

Time allowed 2 Hours.

Answer ALL FOUR questions from Section A (18 marks each) and ONE question from Section B (28 marks). Answer questions from each Section in a separate Answer Book. Approved hand calculators may be used. Read carefully the instructions on the answer book provided and make sure that the particulars required are entered on each answer book. If you answer more questions than are required and do not indicate which answers should be ignored, we will mark the requisite number of answers in the order in which they appear in the answer book(s): answers beyond that number will not be considered. TWO Sections. Section A – FOUR questions. Section B – FOUR questions.

Previous exam papers can be found in the University’s past papers archive. Please note that previous exam papers may not have operated under the same exam rubric or assessment weightings as those for the current academic year. The content of past papers may also be different.

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