Psychology and Economics

Readings

Starred readings are required. Please read these papers before coming to class. The instructor will announce in each class which paper(s) to read for the subsequent class(es). Non-starred readings are not required, but they may help you understand the materials covered in lectures or problem sets. You might want to consult these papers in case you’d like to deepen your understanding of the material covered in class, but we will not test you on the content of these papers beyond the parts that are covered in class.

Lectures 1–2: Introduction and Overview

• **Rabin (2002): “A Perspective on Psychology and Economics” (sections I and II). European Economic Review, 46, no 4–5: 657–687. 
• Carter et al. (2017): “The Impact of Computer Usage on Academic Performance: Evidence from a Randomized Trial at the United States Military Academy.” Economics of Education Review, 56: 118–132.
• Darley and Batson (1973): “From Jerusalem to Jericho”: A Study of Situational and Dispositional Variables in Helping Behavior." Journal of Personality and Social Psychology, 27, no. 1: 100–108.
• DellaVigna (2009): “Psychology and Economics: Evidence from the Field.” Journal of Economic Literatur__e, 47, no. 2: 315–72. 
• Gabaix and Laibson (2008): _"_The Seven Properties of Good Models." In The Methodologies of Modern Economics: Foundations of Positive and Normative Economics. Oxford University Press. 
• Mullainathan and Thaler (2000): “Behavioral Economics.” NBER Working Paper #7948. 
• Rabin (1998): “Psychology and Economics.” Journal of Economic Literature, 36, no. 1: 11–46.
• — — — (2013): “Incorporating Limited Rationality into Economics.” Journal of Economic Literature, 51, no. 2: 528–43.

Lectures 3–6: Time Preferences 

Introduction to Time Preferences

• ∗∗Frederick et al. (2002): “Time Discounting and Time Preference: A Critical Review.” Journal of Economic Literature, 40, no. 2: 351–401. 
• Akerlof (1991): “Procrastination and Obedience.” The American Economic Review, 81, no. 2: 1–19.

Quasi-Hyperbolic Discounting

• ∗∗O’Donoghue and Rabin (1999): “Doing it Now or Later.” American Economic Review, 89, no. 1: 103–124.
• Laibson (1997): “Golden Eggs and Hyperbolic Discounting.” The Quarterly Journal of Economics, 112, no. 2: 443–477.
• O’Donoghue and Rabin (2001): “Choice and Procrastination.” The Quarterly Journal of Economics, 116, no. 1: 121–160. 

Empirical Applications

• Ariely and Wertenbroch (2002): “Procrastination, Deadlines, and Performance.” Psychology Science, 13, no. 3. 
• Ashraf, Karlan, and Yin (2006): “Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Phillippines.” The Quarterly Journal of Economics, 121, no. 2: 635–672.
• Bryan et al. (2010): “Commitment Devices.” Annual Review of Economics, 2: 671–698. 
• DellaVigna and Malmendier (2006): “Paying Not to Go to the Gym.” American Economic Review, 96, no. 3: 694–719. 
• Gruber and Köszegi (2001): “Is Addiction ‘Rational’? Theory and Evidence.” The Quarterly Journal of Economics, 116, no. 4: 1261–1303.
• Hershfield (2011): “Future Self-Continuity: How Conceptions of the Future Self Transform Intertemporal Choice.” Annals of the New York Academy of Sciences, 1235: 30–43.
• Kaur, Kremer, and Mullainathan (2015): “Self-Control at Work.” Journal of Political Economy, 123, no. 6. 
• Milkman et al. (2014): “Holding the Hunger Games Hostage at the Gym: An Evaluation of Temptation Bundling.” Management Science, 60, no. 2: 283–299. 
• Schilbach (2019): “Alcohol and Self-Control: A Field Experiment in India.” American Economic Review, 109. no. 4: 1290–1322.

Lectures 7–9: Risk Preferences and Reference-Dependent Preferences

Introduction to Risk Preferences

• **Rabin and Thaler (2001): “Anomalies: Risk Aversion.” Journal of Economic Perspectives, 15, no. 1: 219–232. 
• **Sydnor (2010): “(Over)insuring Modest Risks.” American Economic Journal: Applied Economics, 2, no. 4: 177–99.
• Rabin (2000): “Risk Aversion and Expected-Utility Theory: A Calibration Theorem.” Econometrica, 68, no. 5: 1281–1292.  

Reference-Dependent Preferences

• **Tversky and Kahneman (1979): “Prospect Theory: An Analysis of Decision under Risk.” Econometrica, 47, no. 2: 263–292.

Empirical Applications

• Allen et al. (2014): “Reference-Dependent Preferences: Evidence from Marathon Runners.” NBER Working Paper No. 20343.
• Camerer et al. (1997): “Labor Supply of New York City Cabdrivers: One Day at a Time.” The Quarterly Journal of Economics, 112, no. 2: 407–441.
• Camerer (2001): “Prospect Theory in the Wild: Evidence from the Field.” In A_dvances in Behavorial Economics_. Princeton University Press. ISBN: 9781400829118.
• Carmon and Ariely (2000): “Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers.” Journal of Consumer Research 27, no 3: 360–370.
• Genesove and Mayer (2001): “Loss Aversion and Seller Behavior: Evidence from the Housing Market.” NBER Working Paper No. 8143. 
• Pope and Schweitzer (2011): “Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes.” American Economic Review, 101, no. 1: 129–57.

Lectures 10–13: Social Preferences

Modeling and Measuring Social Preferences

• ∗∗Camerer and Fehr (2004). “Measuring Social Norms and Preferences Using Experimental Games: A Guide for Social Scientists.” In Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies. Edited by Joseph Henrich et al. Oxford University Press. ISBN: 9780199262052

Empirical Applications**

• ∗∗Bandiera et al. (2005): “Social Preferences and the Response to Incentives: Evidence from Personnel Data.” The Quarterly Journal of Economics, 120, no. 3: 917–962.
• ∗∗Rao (2019): “Familiarity Does Not Breed Contempt: Diversity, Discrimination and Generosity in Delhi Schools.” American Economic Review, 109, no. 3: 774–809. 
• Gneezy and List (2006): “Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments.” NBER Working Paper 12063. 
• Henrich (2012): “Hunter-Gatherer Cooperation.” Nature, 481: 449–450.
• Lazear et al. (2012): “Sorting in Experiments with Application to Social Preferences.” American Economic Journal: Applied Economics, 4, no. 1: 136–163.
• Andreoni and Bernheim (2007): “Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects.” Econometrica, 77, no. 5: 1607–1636.
• Dana et al. (2007): “Exploiting Moral Wiggle Room: Experiments Demonstrating an Illusory Preference for Fairness.” Economic Theory, 33: 67–80.
• Ellingsen and Johannesson (2007): “Paying Respect.” Journal of Economic Perspectives, 21, no. 4: 135–150. 

Lecture 14: Limited Attention

• ∗∗Chetty et al. (2009a): “Salience and Taxation: Theory and Evidence.” American Economic Review, 99, no. 4: 1145–77. 
• Hanna et al. (2014): “Learning Through Noticing: Theory and Evidence from a Field Experiment.” The Quarterly Journal of Economics, 129, no. 3: 1311–1353.
• Huberman and Regev (2001): “Contagious Speculation and a Cure for Cancer: A Nonevent That Made Stock Prices Soar.” Journal of Finance, 56, no. 1: 387–96. 
• DellaVigna (2009): “Psychology and Economics: Evidence from the Field.” Journal of Economic Literature, 47, no. 2: 315–72. 

Lectures 15–16: Utility from Beliefs: Learning

• ∗∗Oster et al. (2013): “Optimal Expectations and Limited Medical Testing: Evidence from Huntington Disease.” American Economic Review, 103, no. 2: 804–30.
• Chen et al. (2016): “Decision Making Under the Gambler’s Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires.” The Quarterly Journal of Economics, 131, no. 3: 1181–1242.
• Gilovich et al. (1985): “The Hot Hand in Basketball: On the Misperception of Random Sequences.” Cognitive Psychology, 17, no. 3: 295–314. 
• Gold and Hester (1987): The Gambler’s Fallacy and the Coin’s Memory." Unpublished manuscript. Carnegie Mellon University. 
• Loewenstein (1987): “Anticipation and the Valuation of Delayed Consumption.” The Economic Journal, 97, no. 387: 666–684. 
• Malmendier and Tate (2008): “Who Makes Acquisitions? CEO Overconfidence and the Market’s Reaction.” Journal of Financial Economics, 89, no. 1: 20–43. 
• Tversky and Kahneman (1974): “Judgment under Uncertainty: Heuristics and Biases.” Science, 185, Issue 4157: 1124–1131. 

Lecture 17: State-Dependent Preferences, Projection, and Attribution Bias

• **Haggag and Pope (2016): “Attribution Bias in Economic Decision Making.” The Review of Economic Studies, 86, no. 5: 2136–2183. 
• **Loewenstein et al. (2003): “Projection Bias in Predicting Future Utility.” The Quarterly Journal of Economics, 118, no. 4: 1209–1248. 
• **Read and van Leeuwen (1998): “Predicting Hunger: The Effects of Appetite and Delay on Choice.” Organizational Behavior and Human Decision Processes, 76, no. 2: 189–205.
• Badger et al. (2007): “Altered States: The Impact of Immediate Craving on the Valuation of Current and Future Opioids.” Journal of Health Economics, 26, Issue 5: 865–876.
• Boven and Loewenstein (2003): “Social Projection of Transient Drive States.” Personality and Social Psychology Bulletin, 29, Issue 9. 
• Busse et al. (2015): “The Psychological Effect of Weather on Car Purchases.” The Quarterly Journal of Economics, 130, Issue 1: 371–414.
• Conlin et al. (2007): “Projection Bias in Catalog Orders.” American Economic Review, 97, no. 4: 1217–1249. 
• Loewenstein (1996): “Out of Control: Visceral Influences on Behavior.” Organizational Behavior and Human Decision Processes, 65, Issue 3: 272–292. 

Lecture 18: Gender, Discrimination, and Identity

• ∗∗Sarsons (2017): “Interpreting Signals in the Labor Market: Evidence from Medical Referrals.” Job Market Paper. 
• Bertrand et al. (2015): “Gender Identity and Relative Income within Households.” The Quarterly Journal of Economics, 130, no. 2: 571–614.
• Goldin (2014): “A Grand Gender Convergence: Its Last Chapter.” American Economic Review, 104, no. 4: 1091–1119.
• Vesterlund et al. (2015): “Breaking the Glass Ceiling with ‘No’.” Working Paper 5663, Department of Economics, University of Pittsburgh. 
• Fredrickson et al. (1998): “That Swimsuit Becomes You: Sex Differences in Self-Objectification, Restrained Eating, and Math Performance.” Journal of Personality and Social Psychology, 75, no. 1: 269–84.
• Niederle and Vesterlund (2011): “Gender and Competition.” Annual Review of Economics, 3: 601–630. 

Lecture 19: Defaults, Nudges, and Frames

• ∗∗Madrian and Shea (2001): “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior.” The Quarterly Journal of Economics, 166, no. 4: 1149–1187.
• Bertrand et al. (2010): “What’s Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment.” The Quarterly Journal of Economics, 125, no. 1: 263–306.
• Blumenstock et al. (2016): “Mobile-Zing Savings with Automatic Contributions: Experimental Evidence on Dynamic Inconsistency and the Default Effect in Afghanistan.” Working Paper. 
• Carroll et al. (2009): “Optimal Defaults and Active Decisions.” The Quarterly Journal of Economics, 124, 4: 1639–1674.
• Chetty et al. (2014): “Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts.” NBER Working Paper 18565. 
• Huber et al. (1982): “Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis.” Journal of Consumer Research, 9, no. 1: 90–98.
• Thaler and Benartzi (2004): “Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving.” Journal of Political Economy, 112, no. S1: S164–S187. 
• Hastings and Shapiro (2013): “Fungibility and Consumer Choice: Evidence from Commodity Price Shocks.” The Quarterly Journal of Economics, 128, no. 4: 1449–1498. 
• Thaler (1985): “Mental Accounting and Consumer Choice.” Marketing Science, 4, no. 3: 199–214. 
• Thaler (1999): “Mental Accounting Matters.” Journal of Behavioral Decision Making, 12 no. 3: 183–206. 

Lecture 20: Malleability and Inaccessibility of Preferences

• ∗∗Ariely et al. (2003); “‘Coherent Arbitrariness’; Stable Demand Curves without Stable Preferences.” In The Construction of Preference. Edited by Sarah Lichtenstein and Paul Slovic. Cambridge University Press. ISBN: 9780521834285.
• Nisbett and Wilson (1977): “Telling More Than We Can Know: Verbal Reports on Mental Processes.” Psychological Review, 84, no. 3: 231–259. 

Lecture 21: Poverty through the Lens of Psychology

• ∗∗Mani et al. (2013): “Poverty Impedes Cognitive Function.” Science 341, Issue 6149: 976–980. 
• Schilbach et al. (2016): “The Psychological Lives of the Poor.” American Economic Review, 106, no. 5: 435–40.
• Banerjee et al. (2015): “A Multifaceted Program Causes Lasting Progress for the Very Poor: Evidence from Six Countries.” Science, 348, Issue 6236. 
• Haushofer and Fehr (2014): “On the Psychology of Poverty.” Science, 344, Issue 6186: 862–867.
• Shah et al. (2015): “Scarcity Frames Value.” Psychological Science, 26, no. 4: 402–412.

Lecture 22: Happiness and Mental Health

• ∗∗Stevenson and Wolfers (2008): “Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox.” Brookings Papers on Economic Activity, 2008. no 1. 
• Levitt (2021): “Heads or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness.” The Review of Economic Studies, 88, Issue 1: 378–405. 
• Kahneman and Thaler (2006): “Anomalies: Utility Maximization and Experienced Utility.” Journal of Economic Perspectives, 20. no. 1: 221–234. 
• Kahneman (1994): “New Challenges to the Rationality Assumption.” Journal of Institutional and Theoretical Economics, 150. no 1: 18–36.
• Köszegi and Rabin (2008): “Choices, Situations, and Happiness.” Journal of Public Economics, 92, Issues 8–9: 1821–1832. 
• Schkade and Kahneman (1998): “Does Living in California Make People Happy? A Focusing Illusion in Judgments of Life Satisfaction.” Psychological Science, 9, no. 5: 340–346. 

Lecture 23: Policy with Behavioral Agents

• **Thaler and Sunstein (2003): “Libertarian Paternalism.” American Economic Review, 93, no. 2: 175–179.