The Foundations of Behavioral Economic Analysis

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.

Table of Contents

PART 1: Behavioral Economics of Risk, Uncertainty, and Ambiguity
CHAPTER 1: The Evidence on Human Choice under Risk and Uncertainty
CHAPTER 2: Behavioral Models of Decision Making
CHAPTER 3: Applications of Behavioral Decision Theory
CHAPTER 4: Human Behavior under Ambiguity

PART 2: Other-Regarding Preferences
CHAPTER 5: The Evidence on Human Sociality
CHAPTER 6: Models of Other-Regarding Preferences
CHAPTER 7: Human Morality and Social Identity
CHAPTER 8: Incentives and Other-Regarding Preferences

PART 3: Behavioral Time Discounting
CHAPTER 9: The Evidence on Temporal Human Choice
CHAPTER 10: Behavioral Models of Time Discounting
CHAPTER 11: Applications of Present-Biased Preferences

PART 4: Behavioral Game Theory
CHAPTER 12: The Evidence on Strategic Human Choice
CHAPTER 13: Models of Behavioral Game Theory

PART 5: Behavioral Models of Learning
CHAPTER 14: Evolutionary Game Theory
CHAPTER 15 Models of Learning
CHAPTER 16: Stochastic Social Dynamics

PART 6: Emotions
CHAPTER 17: Emotions and Human Behavior
CHAPTER 18: Interactions between Emotions and Cognition

PART 7: Bounded Rationality
CHAPTER 19: Judgment Heuristics
CHAPTER 20 Mental Accounting
CHAPTER 21: Bounded Rationality in Financial Markets

PART 8: Behavioral Welfare Economics
CHAPTER 22: Behavioral Welfare Economics

PART 9: Neuroeconomics
CHAPTER 23: Neuroeconomics