Thursday, July 30, 2009

Behavioural Economics Lectures

I am working again on the structure of the behavioural economics course and comments very welcome

link here

Last years course focused on developing the core of behavioural economics including lectures on rationality, emotion, identity, intertemporal choice and basic applications to public policy. I am currently hoping to extend the scope and restructure the course somewhat.

In particular, I am trying to zone in on the relevance of behavioural economics to core areas of economics. With this in mind, I have added lectures such as:

- a lecture on consumption, examining the main theories of consumption such as the life-cycle model and the evidence on how people behave and related behavioural theories

- a lecture on investment, examining psychological models of investment and their implications for financial regulation.

- a lecture on business cycles and growth. the business cycles aspect draws heavily from Akerlof and Shiller and looks at recent models of output volatility that incorporate behavioural explanations. The growth side is not well formed yet. I will incorporate work on technology adoption as well as new models of human capital development linking economics, psychology and neuroscience.

Comments welcome. Am happy to talk to people about working versions of these lectures if people have particular interest in any of the topics.


Enda Hargaden said...

My only comments:

When thinking about growth, it might be worth keeping the long-run in mind. Solow says only TFP growth matters and Easterly and Levine ( agree on that point.

So opposed to a bust and boom approach, it might be worth asking: How might behavioural economics affect long-run TFP growth?

(At the moment, my thinking is "probably not much".)

Liam Delaney said...

There in an awful lot we can learn about TFP from looking at behavioural at the moment. In fact, this is probably where we can learn most. See for example the huge body of work associated with development of non-cognitive traits through the lifespan. What is this work referring to if not TFP?

Also - we are increasingly interested in issues such as health behaviours, disease management, technology adoption, environmental behaviours. Surely Enda this is fundamentally got to do with TFP for a given level of population and capital growth.

heckman on productivity and educational investment

Enda Hargaden said...

I think you might be mis-interpreting me. Not for a moment am I suggesting that BE cannot increase TFP. State intervention aimed at helping kids reach their potential is about as uncontroversial an idea as imaginable. That would move TFP up to a higher level and it carries fantastic social and ethical implications. However I struggle to see how it could help TFP continue to grow. My concern in my first comment was about long-run TFP *growth*, not levels. (Perhaps it could produce more inventors? It's a debate I'd like to hear.)

From what I have read in the BE literature on TFP it seems to focus more on "consumption-smoothing"-esque approach to busts and booms. That's fine. It is correct that constant 2% growth is preferable to 6%, 8%, -8%, 5%, -4%, 3%.

Great, smoothing makes us happier. But could it depress the overall increase through time? Suppose in ten years' time Irish GNP will be €50,000 with "TFP smoothing" or €53,000 without. Was the smoothing worth it? (There's the counter-argument that smoothing removes some risk, changes preferences, and so output with smoothing would exceed output without. How likely is this to be the case?)

There are important questions that if I were taking the class, I'd like you to cover. So, as I said, it might be worth thinking "How might behavioural economics affect long-run TFP growth?"

(And my "probably not much" instinct remains -- I suspect attempts to smooth growth would neither significantly curtail nor enhance its long-term path. We would get the benefits of smoothing, though.)

Liam Delaney said...

Smoothing is a different issue and one that the lecture does cover.

I dont see your point about how TFP could be improved but not TFP growth but we can argue this through offline. I think you are conflating the behavioural literature on whether people consumption smooth with the literature I am primarily addressing in the growth section which focuses on technology adoption, human capital development and so on. I think the non-cognitive skills work is clearly about long-run growth in TFP unless I am missing something. I think they also work well in the context of a behavioural course because the recent literature has been very heavily influenced by psychology.