Behavioral Economics: When Psychology and Economics Collide

Rated 1 out of 5 by from Flawed logic Scott A. Huettel - Your logic is flawed. "Range effect = our sense of a meaningful difference in some quantity is inversely proportional to its range." In your comparison to making a tv purchase for $5 more instead of driving 15 minutes to save $5 and the cup of coffee for $10 vs a 15 minute drive for a $5 cup of coffee? If I buy coffee 5 days a week on my way to work every morning, I've taken into account on how much more I'll be spending on coffee.. My savings over the course of one month would be $100. I dont buy tvs 5 times a week. People would mentally calculate how expensive that addition $5 for convenience would quickly add up. No one is buying tvs at the same rate they purchase things like coffee, doughnuts, soft drinks etc. TLDR; Once a year I'm lazy and dont feel like driving 15 minutes further to save $5 on my purchase for a new tv..... I however won't spend $10 on a coffee I already know I will buy 5 days a week because logically I already know that would cost me an additional $100 at the end of one month. Same thing can be applied to houses, cars, etc.. Bigger purchases aren't something I'm going to blink at because its not even close to the rate at which I buy LITERALLY EVERYTHING ELSE. Example: everything at my favorite grocery store goes up in price by one dollar. everything. Every item I now put in my basket is literally $1 more then it was yesterday, THAT im going to feel in my wallet. If the prices of TVs or cars go up $1,000 over night, it's not going to give me the stroke the grocery store would. I'm not buying cars everyday. The rate at which people make those purchases need to be part of your logic, it certainly is already part of everyone else's regardless if you see it or not.
Date published: 2021-01-11
Rated 5 out of 5 by from Excellent and Fascinating - Worthwhile for All! This is a truly worthwhile course for all. It does an excellent job of covering a fascinating field with potentially important practical significance for everyone's life decisions. The basic idea is that - contrary to the traditional assumption of economics and often of other human behavior - people are not rational. Our decisions are often biased by entirely unjustifiable influences, and are thus subject to manipulation. whether accidental or intentional. The latter is a large part of marketing. One common example is that we are more likely to purchase a product for any given price if we think it is on sale. (Remind anyone of the marketing approach of the organization from which you obtained this course?) A warning that "supplies are limited" also boosts sales. And we are prone to put more effort into saving a given amount of money, such as by traveling to a store with a lower price, if the percent saved is greater. That is, we'd be more likely to travel 20 miles to save $50 on a product that normally costs $100 than to save the same $50 on a product that normally costs $1000. These are among the simplest cases; the course goes into far deeper and more fascinating material. Lecture 16, on "Medical Decision Making", is particularly well done and relevant for us all. Professor Huettel is outstanding. - Every lecture is organized, clear, and eloquently presented. Although he never smiles (except in the photo on the course materials), he expresses himself beautifully and avoids wandering into unnecessary digressions. I was easily able to maintain my focus throughout. I can only come up with a few tiny criticisms. In one lecture he uses "rotate" and "revolve" as if they were synonyms. And occasionally he overlooks a pretty obvious alternative explanation for the findings in a study. For example, offered a variety of sandwiches, the failure to choose a vegetarian sandwich is considered an irrational choice regarding one's health, although the fish sandwich might actually be considered healthier. I watched the video, but the audio also be fine. And the Course Guidebook is particularly complete and well written. So - obviously I have the highest recommendation for this course. For the many reasons noted, it is one of the few Great Courses which I recommend without reservation for everyone. But only buy it on sale!
Date published: 2020-12-05
Rated 5 out of 5 by from Great course Excellent teaching and real world examples. Highly recommend.
Date published: 2020-03-15
Rated 4 out of 5 by from Good But Not Great I found this course a bit of a challenge. The topic is important, and the information conveyed is useful. That said, the presentation is simplistic, and a number of the professor's assertions are unsupported and appear to ignore equally plausible alternative rationales or conclusions. As a result, while I thought the professor's lecture style was pleasant, I was frustrated he made little effort to persuade or prove. I listened to the audio version, which I think is entirely adequate for this course.
Date published: 2019-12-22
Rated 5 out of 5 by from The highlights on the screen. I am learning more about my everyday decision making. The course is very well taught. It brings me feedback from previous decisions that go way back. It makes me reevaluate and reinforce my thought process which promotes better thinking. The insights that the professor brings to lecture are insightful and very current.
Date published: 2019-02-14
Rated 5 out of 5 by from Great Course, Practical Advice I’ve watched other lectures on Behavioral Economics, so I was worried that I would hear the same material and not get much from the course. What sets these lectures apart is Professor Huettel’s excellent advice on “how” to implement the topics so that you can take advantage of the concepts in day-to-day life. The course is interesting, well presented, and the professor does a great job of recapping each lecture. If you want a practical guide to using the lessons learned from Behavioral Economics, this course is for you.
Date published: 2019-01-11
Rated 4 out of 5 by from A Complex Topic Made (too) Simple Behavior is basically choices. Those choices are based on an individual's life experiences and what they have learned from those experiences. Big moments are given a large weighting in that calculus, often too big. Economics matters less to most of us than one would expect because of this. This course could have benefited from considering this. Viewed from the perspective of a marketing executive, it has reasonable merit. Viewed from the perspective of an individual looking to make wiser life choices, it applies less.
Date published: 2019-01-10
Rated 5 out of 5 by from More factors than math and logic! In the thirty years since my MPA in Economics more factors have been researched. Hope other government workers learned more than just partisan framing.
Date published: 2018-11-20
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Behavioral Economics: When Psychology and Economics Collide
Course Trailer
What Is a Good Decision?
1: What Is a Good Decision?

Begin by examining "rational choice" models of decision making from traditional economics, which assume consistent, foresighted, and self-interested decision makers. Then consider how this concept fails to explain many human decisions that appear counterintuitive or paradoxical. Identify two fundamental limitations that challenge our decision-making process.

32 min
The Rise of Behavioral Economics
2: The Rise of Behavioral Economics

Grasp how behavioral economics uses methods from both economics and psychology to better understand biases and anomalies in decision making-factors that "rational choice" models don't explain. Learn three core experimental principles of behavioral economics, and about Prospect Theory, which helps explain what human beings value.

29 min
Reference Dependence-It's All Relative
3: Reference Dependence-It's All Relative

The element of "value" lies at the heart of decision making. Explore the nature of value and the roles of both pleasure and "benefit" in human choices. Then study the neurobiology of decision making and the ways in which the neurotransmitter dopamine creates expectations and activates reward seeking or "wanting," an integral factor in our behavior.

29 min
Reference Dependence-Economic Implications
4: Reference Dependence-Economic Implications

"Reference dependence" is one of the most central concepts in behavioral economics. Learn how human beings use value to create an expectation or reference point in many decision-making situations, leading to biases that affect choices. Consider how these biases influence both individual and market behavior, and how understanding them can help us make better decisions.

28 min
Range Effects-Changing the Scale
5: Range Effects-Changing the Scale

The principle of "range effects" describes how the relative difference between two quantities becomes less meaningful as the absolute values of those quantities get larger. Grasp how this phenomenon explains apparent inconsistencies in human behavior, and how its existence is linked to our biology. Learn specific steps you can take to minimize its unwanted influence on your decisions.

29 min
Probability Weighting
6: Probability Weighting

"Probability weighting" describes how people tend to convert objective information about probability into a subjective sense of what may happen-which can lead to bias and error. Observe how this applies to real-life situations such as buying life or travel insurance, and learn two tools to change how you deal with probabilities.

29 min
Risk-The Known Unknowns
7: Risk-The Known Unknowns

Tolerance for risk is another fundamental element of decision making. Learn how behavioral economics evaluates "risk aversion" and "risk seeking" in both economic and personal contexts, and grasp the role of perceived benefits and perceived risks in explaining risk-taking behavior and choices. Finally, study two basic principles for managing risk.

29 min
Ambiguity-The Unknown Unknowns
8: Ambiguity-The Unknown Unknowns

In behavioral economics, "ambiguity" refers to conditions in decision making in which we do not know and cannot estimate the probabilities of potential outcomes. Here, investigate three circumstances in decision making that produce ambiguity: "hidden information," "asymmetrical knowledge," and "unfamiliar contexts." Then, learn a two-step approach for dealing effectively with ambiguity.

28 min
Temporal Discounting-Now or Later?
9: Temporal Discounting-Now or Later?

Now consider a fundamental challenge in decisions involving time: temporal discounting, or the human tendency to view rewards as worth less in the future than they are in the present. Study real-life examples of this phenomenon, three explanations for why it occurs, and key approaches to making better time-related decisions.

29 min
Comparison-Apples and Oranges
10: Comparison-Apples and Oranges

This lecture explores how people create and compare the subjective values of different options in order to make a decision. Review substantial evidence indicating that our brains construct subjective value at the moment of a decision; then look at ways to use this process of active construction to your advantage.

28 min
Bounded Rationality-Knowing Your Limits
11: Bounded Rationality-Knowing Your Limits

The concept of "bounded rationality" describes human behavior regarding complex decisions. Using the example of purchasing a car, observe how our brains naturally narrow options and judge alternatives, creating simple rules to make complexity manageable. Learn also about "unconscious decision making" and surprising data suggesting that active deliberation can often impede good decisions.

30 min
Heuristics and Biases
12: Heuristics and Biases

Behavioral economics defines "heuristics" as internal rules or tools that people use to optimize decision making. Explore four of the most commonly used heuristics, observable in decisions involving memory, valuation, probabilities, and emotions. Using real-world examples, identify where these tools are helpful, and where they fail.

31 min
Randomness and Patterns
13: Randomness and Patterns

Here, look into the nature of randomness-situations in which we can't predict the future from the past-and why it matters for decision making. Study how our brains automatically look for patterns and structure, often "seeing" patterns whether they are present or not, and learn ways to counteract this tendency.

30 min
How Much Evidence Do We Need?
14: How Much Evidence Do We Need?

Study the role of evidence, or "meaningful information," in decision making and the kinds of mistakes we make with regard to it. Grasp how we tend to overestimate the quality of evidence and to seek evidence that confirms our prior beliefs, and how we can learn to minimize our biases regarding evidence.

29 min
The Value of Experience
15: The Value of Experience

Regarding buying decisions, consider the value we attach to purchasing experiences. Review studies comparing purchases of material goods with experiences, and evidence that purchases of experiences lead to more happiness. Consider the role of memory in the satisfaction related to experiences, and how we can prioritize our buying decisions for greater quality of life.

30 min
Medical Decision Making
16: Medical Decision Making

In the high-stakes world of medical decisions, learn how behavioral biases apply to both patients and their physicians. Study three key factors that influence how we make medical decisions. Finally, learn how to apply the principles of behavioral economics to this specific area, so that the process of decision making improves.

31 min
Social Decisions-Competition and Coordination
17: Social Decisions-Competition and Coordination

Now consider how the decision process changes when we coordinate our decisions with others. In doing so, encounter the elements of game theory, which models interactions during strategic decision making. Study the challenges involved in small group decisions, the role of emotion in their outcomes, and recommendations for navigating interpersonal decisions.

31 min
Group Decision Making-The Vox Populi
18: Group Decision Making-The Vox Populi

This lecture examines the "wisdom of crowds," where groups are shown to make better decisions than individuals. Explore why this is so, focusing on the element of diversity, and also where this phenomenon fails. Evaluate the primary factors in good group decisions and how to promote them in a range of contexts.

30 min
Giving and Helping-Why Altruism?
19: Giving and Helping-Why Altruism?

Why do people act to help others, even when those actions may not be in their own interest? Investigate the nature of altruism and human behavioral biases that affect generosity and charitable giving. Identify how we can use these biases as tools to both encourage giving and make better decisions.

30 min
Cooperation by Individuals and in Societies
20: Cooperation by Individuals and in Societies

Here, explore why we (and other animals) work together for mutual gain, and what kinds of interactions lead to cooperative behavior. Observe how cooperation arises through a combination of self-interest, awareness of others' actions, and social norms, and how it is maintained through practices of punishment and reward.

31 min
When Incentives Backfire
21: When Incentives Backfire

In certain cases, incentives can backfire, actually discouraging behavior that they're intended to encourage. Review studies demonstrating this effect in both small-scale interpersonal interactions and large-scale social policies. Identify how external incentives can undermine people's internal motivations, and study four key guidelines for where incentives work.

30 min
Precommitment-Setting Rationality Aside
22: Precommitment-Setting Rationality Aside

In "precommitment" strategies, we make binding decisions in the present for benefits in the future. Study precommitment in situations such as retirement savings, economic transactions, and organ donation programs. Learn how it works effectively when it is credible and costly, and how we can use it to improve our personal quality of life.

30 min
Framing-Moving to a Different Perspective
23: Framing-Moving to a Different Perspective

A "framing" effect is a change in people's decisions when the same objective information is presented in two different ways. Grasp the powerful effects of framing in examples from consumer marketing, investing, and retirement planning. Learn how the framing effect provides a highly potent tool for making good decisions.

29 min
Interventions, Nudges, and Decisions
24: Interventions, Nudges, and Decisions

Conclude with a look at how leaders and policymakers can shape other people's decisions. Consider five core approaches to influencing beneficial decisions, and a key policy model that fosters people's well-being while maintaining their autonomy. Reflect on both ethical concerns about the scientific study of decision making and its real potential to improve lives.

31 min
Scott Huettel

Over the past half-century, decision scientists have identied anomalies, or biases, in people's behavior that can't readily be explained with traditional economic models.

ALMA MATER

Duke University

INSTITUTION

Duke University

About Scott Huettel

Professor Scott Huettel is the Jerry G. and Patricia Crawford Hubbard Professor of Psychology and Neuroscience at Duke University. He earned his Ph.D. from Duke in Experimental Psychology and completed a postdoctoral fellowship in functional brain imaging and decision science at the university’s medical center. He is also the founding Director of the Duke Center for Interdisciplinary Decision Science. Professor Huettel is a leading researcher at the intersection of behavioral economics and neuroscience. His laboratory uses a combination of behavioral, genetic, physiological, and neuroscience techniques to discover the neural mechanisms that underlie higher cognition, with a focus on economic and social decision making. He is an author of more than 100 scientific publications, including articles in Science, Nature Neuroscience, Nature Reviews Neuroscience, Neuron, Psychological Science, and other top journals in several fields. His research has been featured in CNN, Newsweek, Money magazine, NPR Science Friday, and many other media outlets. He is lead author on a primary textbook in neuroscience, Functional Magnetic Resonance Imaging, and he is a coeditor of the textbook Principles of Cognitive Neuroscience. Professor Huettel is a recipient of the Dean’s Award for Excellence in Mentoring from the Duke University Graduate School, and has been recognized as one of the top 5 percent of undergraduate instructors at Duke.

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