The purpose of this course is to inform future managers, analysts and consultants of the deeper psychological processes which underlie decision making. The course will enable the students to incorporate the insights into marketing, human resource practices, finance and business strategies. How a woman (or a man) fares in life depends to a large extent on a series of decisions that she takes. However, the process of how we arrive at decisions is often very complex. To keep things simple, economists assumed away much of the complexity and developed a rather simplistic framework for analyzing human behavior. The framework came to be known as the Rational Actor Model, where human beings were assumed to have many super human power. Let’s call them homo economicus or simply, Econs. Econs are willful, selfish and have perfect foresight while also possessing extraordinary abilities to make complex calculation at very short period of time. Behavioral Economics was born as an antithesis to the Rational Actor Model. In this alternative paradigm, human beings were assumed to be less selfish and smart, prone to mistakes and procrastinations and often times myopic. Let’s call them homo behavioralis or Humans. Do Humans sound more like you and me or for that matter, your neighbor next door? Consider the following: ask the person on your left the answer to the following: 1 x 2 x 3 x 4 x 5 x 6 x 6 x 7 x 8 x 9 = ? To the one on your right: 9 x 8 x 7 x 6 x 5 x4 x 3 x 2 x 1=? Chances are that the one on your right will quote a higher number. The reason is they are Humans. If they were all Econs, the answer they would give would all be the same and it would indeed be the correct answer. Each topic covered in this course will have two facets. First, students will get a broad overview of important results from behavioral economics and psychological aspects of economic decision making. Second, the students will see applications corresponding to these results. The course will also introduce the students the idea of experimentation -the methodological tool in which one thing is changed at a time which in turn makes causal inference possible. Overall, the participants will have a better understanding of people and how they make decisions, which in turn will allow them to take effective managerial decisions.
