Behavioral Economics

Arthur O'Sullivan is Dr. Robert B. Pamplin Jr. Professor of Economics at Lewis & Clark College. He is the author of Urban Economics, Ninth Edition (2019), the best-selling urban economics text, and co-author, with Steven Sheffrin and Stephen Perez, of Economics: Principles, Applications, and Tools, Tenth Edition (2020).

[This book] has excellent coverage of topics, really great learning design for students, and nice connection with academic studies.

• Part 1: Introduction Chapter 1. Introduction & Key Concepts of Microeconomics1. What is Behavioral Economics?2. Key Concepts: Marginal ReasoningOpportunity CostThe Marginal PrincipleThe Equimarginal Principle3. Key Concepts: Equilibrium and EfficiencyNash EquilibriumComparative StaticsPareto Efficiency Chapter 2. Insights from Behavioral Science1. Social Preferences and Social NormsAdam Smith and the Impartial SpectatorRule Following Task: Avatar PedestrianSharing the Rewards of CollaborationThe 50-50 NormIncurring a Cost to Enforce a Social Norm2. Mental ShortcutsMental AccountingDefault Options3. Cognitive BiasThe Decoy EffectPresent Bias4. Problems with ProbabilitiesRare EventsThe Gambler's Fallacy5. Instinctive Urges and Thoughtful DeliberationApple versus CupcakeHunting Practices of the Ju/'hoansiWhy Do We Do That?Appendix to Chapter 21. Anchors2. Confirmation Bias3. Overconfidence Effect4. Availability Heuristic Part 2: Social Preferences and Pro-Social Behavior Chapter 3. Social Norms: Sharing and Enforcement1. Utility Maximization with a Social NormUtility Maximization2. Sharing Behavior: The Dictator GameGame Structure and ResultsVariation in Sharing Behavior3. Costly Norm EnforcementThird-Party Punishment of Norm ViolatorsStructure of the Ultimatum GameA Norm-Sensitive ResponderEquilibrium Responder ShareA Norm-Sensitive Proposer4. Results from Ultimatum-Game ExperimentsMeta-Analysis of Ultimatum ExperimentsCrosswalk Rules and the Ultimatum Game5. Market Engagement and Social Norms Chapter 4. Trust1. The Trust Game: Investment & ProductionGame StructureOutcome in the Absence of a Sharing Norm2. A Sharing Norm for the ProducerThe Producer's Trade-Off: Material Benefit versus Norm-Violation CostVarying Norm Sensitivity and Return FractionsThe Investor Decision3. A Sharing Norm for the InvestorThe Investor's Trade-Off: Material Benefit versus Norm-Violation CostRelative Norm Sensitivity and EquilibriumSocial Norms, Efficiency, and Social Capital4. Experiments and ImplicationsExperimental ResultsThe Trust Game and Social CapitalThe Trust Game and Oxytocin Chapter 5. Public Goods and Voluntary Contributions1. Free Riding and Economic ExperimentsThe Free-Rider ProblemResults from Voluntary-Contribution Experiments2. Social Norms and Voluntary ContributionsNorm: Efficient ContributionNorm: Equal ContributionExplaining a Path of Decreasing Contributions3. Punish Free Riders?Punishing Norm ViolatorsSummary of Experimental Results Chapter 6. Identity, Norms, and Reciprocity in the Workplace1. Worker Reciprocity and Social CapitalPerfect or Imperfect Information in the Workplace?Social Norms and Pareto Improvements2. Worker Identity and EffortUtility-Maximizing EffortInsiders versus OutsidersNorm Sensitivity and EffortProducer Investment in Identity Management3. Response to a Higher WageWages and a Sharing NormWages and the Work-Effort NormWages and Profit4. Evidence of Worker ReciprocityField ExperimentsA Gift-Exchange Experiment Chapter 7. Voluntary Prices1. Voluntary Prices: Pay What You WantThe Equal-Sharing Price and Norm-Violation CostSustainability of PWW SystemsEconomic Experiment: Pay What You Want versus Pay It Forward2. Public Broadcasting: Free Riders and Guilt-Tripping Pledge DrivesPayoffs to Members and Free RidersChoosing the Length of a Pledge Drive Chapter 8. Imitation and Cultural Learning1.Imitation and ConformityOver-Imitation by HumansOver-Imitation: Humans versus ChimpanzeesConformity and Matching Pennies2.Faithful Imitation and Cultural LearningManioc and Obscure Production ProcessesSocial Learning: Humans versus Chimpanzees Part 3: Time Preferences Chapter 9. Discounting and Present Bias1. Conventional Discounting and Present BiasThe Quasi-Hyperbolic Discount FunctionPresent Bias and Doubling Your ApplesTime InconsistencyTime Inconsistency and the Relative Values of BundlesPresent Bias and Regret2. Estimates of Discounting ParametersEstimates of Conventional Discounting and Present BiasEconomic Experiment: Patience among Mothers and Children3. Illustrations: Cupcake, Weed, Bucket ListCupcake versus AppleHomeowner versus WeedThe Bucket List Chapter 10. Time Preferences and Saving1. Discounting and Intertemporal ChoiceSaving and the Equimarginal PrinciplePresent Bias and Regret2. Saving Mandates and NudgesResponse to Mandate: Active SaverResponse to Mandate: Non-SaverNudges: Defaults, Save More Tomorrow, and Saving LotteriesClueless versus Savvy ConsumersThree-Period Model of Intertemporal ChoiceConsumption Path of the Clueless (Naif)Regret of the CluelessConsumption Path of a Savvy ConsumerCommitment Devices and Saving4. Present Bias and Pre-Commitment by Pigeons Chapter 11. When to Act1. Procrastination: Waiting Too LongPresent Bias and a Clueless Decision-MakerConditions for Procrastination2. Self-Awareness and ProcrastinationBackward InductionEvidence of Present Bias and Self-AwarenessClueless versus Self-Aware: How to Tell the Difference3. Preproperation: Acting Too SoonPresent Bias and a Clueless Decision-MakerConditions for Preproperation4. Self Awareness and PreproperationBackward InductionIs Being Clueless Better? Chapter 12. Application of Present Bias--Sin Taxes and Fertilizer1. Personally Harmful Products and Sin TaxesA Model of a Personally Harmful GoodPresent Bias and a Personally Harmful GoodSavvy Consumers and HobblingSupport for Sin Taxes2. Present Bias and Fertilizer InvestmentReview of Intertemporal Choice ModelPresent Bias and the Fertilizer InvestmentPolicy Options: Subsidy versus Nudge Part 4: Mental Accounting and the Endowment Effect Chapter 13. Mental Accounting for Consumers1. Mental Accounting and FungibilityConsumer Budgets and FungibilityMental Accounting and Coupons2. Other Implications of Consumer Mental AccountingMental Accounting and Sunk CostDecoupling Cost and Benefit: Credit Cards and Ride-Hailing ServicesRegular versus Premium Gasoline Chapter 14. Loss versus Gain1. Asymmetric Influences of Loss and GainThe Greater Weight of LossMeasuring the Greater Weight of LossReappraisal and the Weight of Loss2. The Endowment EffectWillingness to Pay versus Willingness to AcceptClassic Endowment ExperimentEvidence for the Endowment EffectEndowment Effect for Chimpanzees and Capuchin MonkeysThe Endowment Effect and ExchangeGreater Weight of Loss and Loss Aversion Part 5: Risk Preferences and Decisions in Uncertain Environments Chapter 15. Risk Preferences and Prospect Theory1. Features of Prospect TheoryUtility Function for Prospect TheoryUtility Value and Certainty Equivalent2. Risk Aversion and Risk NeutralityRisk Aversion and the Risk PremiumRisk Neutrality: Linear Utility and No Loss AversionSources of Risk Aversion3. The Values of Key ParametersRelative Weight of LossDecreasing Sensitivity to Gain and LossMeasuring Sensitivity to StimulusEconomic Experiment: Risk Preferences and Cognitive Ability4. Risk Preferences of Rats Chapter 16. Problems with Probability1. Probability in Prospect TheoryPrelec Probability WeightingPsychological FoundationsA Closer Look at Rare Events2. Learning by Description versus Learning by Experience3. Solving Puzzles with Probability WeightingThe Numbers Game PuzzleThe Longshot Puzzle Chapter 17. Prospect Theory & Asset Markets1.Decreasing Sensitivity and Attitudes toward RiskDecreasing Sensitivity to Gain and Risk AversionDecreasing Sensitivity to Loss and Risk SeekingConstant Sensitivity and Risk Neutrality2. The Disposition PuzzleReservation Price in a Winner MarketReservation Price in a Loser MarketReservation Prices and Time on the MarketEvidence for the Disposition Puzzle3. Disposition Puzzle Disappears?Let Bygones be BygonesConstant Sensitivity to Gain and Loss4. The Equity Premium PuzzleGreater Weight of Loss and Loss AversionLoss Aversion Solves the Equity Premium PuzzleProfessional Traders: Too Much Information? Chapter 18. Prospect Theory and Insurance1. Decreasing Sensitivity and the Willingness to Pay for InsuranceDecreasing Marginal Disutility of LossCertainty Equivalent and Willingness to Pay for InsuranceWillingness to Pay for Insurance versus Break-Even PriceEconomic Experiment: Willingness to Pay for Insurance2. Probability Weighting and Insurance PuzzlesDecreasing Sensitivity and Probability WeightingThe Hazard-Insurance PuzzleThe Insurance-Deductible Puzzle Chapter 19. Reference Points and Goals1. Goals and the Marginal PrincipleGoal-Related Marginal BenefitFull Marginal Benefit and ChoiceGoals on the Golf Course2. Applications: Rainy Day Taxis and AbstinenceApplications: Rainy-Day Taxis and AbstinenceRainy-Day TaxisInefficiency and a Pareto ImprovementAbstinence Part 6: Natural Selection and Culture Chapter 20. Natural Selection and Co-Evolution of Genes and Culture1. Background Concepts from Evolutionary BiologyDNA, Genetic Mutations, and Natural SelectionIllustration: A Fire-Building Manual2. A Closer Look at Fitness and EvolutionFitness, Natural Selection, and EvolutionFitness Contests and Geometric Mean FitnessEconomics versus Biology: Spider Somersaults3. Genes, Environment, Norms, Culture, and CognitionGenes and the EnvironmentGenes and CultureGenes and Social NormsInstinctive Urges versus Thoughtful Deliberation Chapter 21. Cooperation1. Humans versus ChimpanzeesCooperation: Skills and MotivationSharingBearing a Cost to Enforce Norms2. Consumption and Production Benefits of CooperationBenefits from Consumption SmoothingBenefits from Economies of Scale3. Co-Evolution of Genes and CultureGenes and CultureCultural Learning Chapter 22. Loss Aversion and Time Preferences1. Natural Selection and Loss AversionSteady versus Fluctuating ReproductionGain Equals the LossGain Exceeds the LossFitness EquivalenceEnvironmental Conditions and Genetic Mixes2. Natural Selection, Culture, and Time PreferencesTrade-Offs from InvestmentLow Investment ProductivityHigh Investment ProductivityLessons from Historical Data Chapter 23. Natural Selection and Risk Preferences1. Small Reward and Risk AversionGeometric Mean FitnessNatural Selection and Risk Aversion2. Large Reward and Risk NeutralityGreater Fitness for Risk TakersNatural Selection Favors Risk TakingFitness EquivalenceRisk Aversion in Bonobos, Shrews, and Other Creatures3.Subsistence and Risk SeekingSubsistence and Risk PreferencesThe Flexible Risk Preferences of Juncos Chapter 24. Bargaining and the Endowment Effect1. A Hunter-Gatherer Exchange EconomyHunter-Gatherer FitnessEdgeworth Box and Gains from ExchangeBargaining and Equilibrium2. Natural Selection: Bargaining OutcomesEndowment Effect and Nash EquilibriumDisagreement Value and the Nash Bargaining SolutionThe Endowment Effect and Group FitnessEgalitarian Economy and the Endowment Effect GlossaryReferencesIndex