BEHAVIORAL ECONOMICS AND PUBLIC POLICY
2015/2016, Semester 1
Lee Kuan Yew School of Public Policy (Lee Kuan Yew School Of Public Policy)
Modular Credits: 4
Traditional economics, which is one of the key theoretical cornerstones of public policy, typically assumes that human behavior is rational, preferences are stable, and individuals are smart and unemotional. However, human behavior often deviates from standard assumptions due to psychological and social factors; analysis based on traditional economics can therefore misinform policies and lead to detrimental consequences. This course discusses behavioral regularities that are of potential importance for public policy. Students will be exposed to behavioral economic theory and its applications to public policy in the areas of savings, investment, healthcare, climate change, taxation, labor supply, and monetary policy.
PP5101 Economics and Public Policy I, or PP5301 Economic Reasoning and Policy, or PP5501 Economic Applications for Public Organisations
Behavioral Economics and Public Policy
Traditional economics, which is one of the key theoretical cornerstones of public policy, typically assumes that human behavior is rational, preferences are stable, and individuals are unemotional. However, human behavior can often deviate from these standard assumptions due to psychological limitations. Policy analysis based on traditional economics can therefore lead to wrong conclusions. This course presents and discusses behavioral regularities that are of potential importance for public policy. Students will be exposed to behavioral economic theory and its applications for public policy in the areas of savings, investment, healthcare, climate change, taxation, labor supply, and monetary policy. The course helps to understand and appreciate how human psychological attributes, such as bounded rationality, bounded willpower, and bounded self-interest, can affect decision making; how behavioral considerations can help improve policy design and policy outcome; and how public policies can use the insights of behavioral economics more broadly.
Economic Reasoning and Policy
PP5403 Economic Foundations for Public Policy, or
PP5801 Economic Analysis.
Lecturer: Professor Chen Kang
Office: Room OTH 03-01H
Tel: (65) 6516 6194
Office Hrs: Wednesday 3:00pm to 5:00pm and Friday 3:00pm – 5:00pm. Please also feel free to call or use email to schedule an appointment.
Lecture Time: Friday 9:00 am – 12:00 noon (except during the shopping week)
Lecture Venue: SR2-2
Nick Wilkinson and Matthias Klaes (W&K),
An Introduction to Behavioral Economics
edition 2012, Palgrave MacMillan.
Donald Low (ed.),
Behavioral Economics and Policy Design: Examples from Singapore,
2012, World Scientific Publishing.
Akerlof, G. 2002. “Behavioral Macroeconomics and Macroeconomic Behavior”, American Economic Review, 92: 411-433.
Akerlof, G. 2007. “The Missing Motivation in Macroeconomics”, American Economic Review, 97: 5-36.
Ariely, D. 2008. Predictably irrational: the hidden forces that shape our decisions. London: HarperCollins Pub.
Della Vigna, Stefano. 2009. “Psychology and economics,” Journal of Economic Literature, 47: 315-372.
Galizzi, Matteo M. 2014. “What is really behavioral in behavioral health policy? And does it work?” Applied Economic Perspectives and Policy, 36(1): 25-60.
Hillman, Arye L. 2010. “Expressive behavior in economics and politics”, European Journal of Political Economy, 26: 403-418.
James, Simon. 2012. “The contribution of behavioral economics to tax reform in the United Kingdom”,
Journal of Socio-Economics
, 41: 468-475.
Kraus, Michael W., Paul Piff, Rodolfo Mendoza-Denton, Michelle L. Rheinschmidt, and Dacher Keltner. 2012. “Social Class, Solipsism, and Contextualism: How the Rich Are Different From the Poor”,
, 119(3): 546-572
Laibson, D. 1998. “Life-Cycle consumption and hyperbolic discount factors”, European Economic Review, 42: 861-871.
Liu, Peggy J., Jessica Wisdom, Christina A. Roberto, Linda J. Liu, and Peter A. Ubel. 2014. Applied Economic Perspectives and Policy, 36(1): 6-24.
Madrain, C. Brigitte. 2014. “Applying Insights from Behavioral Economics to Policy Design”, Annual Review of Economics, 6: 663-688.
Manner, Mikko and John Gowdy. 2010. “The evolution of social and moral behavior: Evolutionary insights for public policy”,
, 69: 753-761.
Oliver, Adam. 2013. “From Nudging to Budging: Using Behavioural Economics to Inform Public Sector Policy”,
Journal of Social Policy
, 42(4): 685-700.
On, Amir, et.al. 2005. “Psychology, behavioral Economics, and public policy,” Marketing Letters, 16: 443-454.
Sunstein, Cass, and Thaler, Richard. (2003). “Libertarian paternalism”. American Economic Review, 93(2), 175-179.
Thaler, Richard. 1999. “Mental accounting matters”, Journal of Behavioral Decision Making, 12:183-206.
Thaler, R. and Benartzi, S., 2004. “Save more tomorrow ™: Using behavioral economics to increase employee saving”, Journal of Political Economy, 112(1) S164-S187 Part 2 Suppl.
Thaler, Richard and Cass Sunstein. 2008. Nudge: Improving Decisions about Health, Wealth, and Happiness, New Haven: Yale University Press.
Additional references will also be used for group presentation.
Assessment: Group presentation (30%);
Open book Mid-term Examination (30%) (Three Hours);
Term paper and presentation (40%);
Term Paper: The term paper will take the form of a short policy brief on one of the possible applications of Behavioral Economics in public policy design and implementation. The brief is expected to be no more than ten (10) double-spaced pages in length and should include, in addition to the main text, a short one (1)-page summary of the key points. By their nature, policy briefs need to be concise, and should have clear policy recommendations. It will be presented on 6 November 2015.
Course Schedule for the Semester
Introduction and Course Overview
. (Shopping Week)
W&K Chap 1
Beliefs, Heuristics and Biases
W&K Chap 4, 11
Loss Aversion and the Endowment Effect
W&K Chap 5
Mental Accounting and Framing
W&K Chap 6
Procrastination and Hyperbolic Discounting
W&K Chap 7, 8, 9
Fairness and Social Preferences
W&K Chap 10
Low Chap 3
Environment and Climate Change
Low Chap 4
Fiscal Transfers and Taxation
Low Chap 6
Health Decisions and Healthcare
Low Chap 7
Labor Market and Macroeconomic Policies
Akerlof (2002, 2007)
Presentation of Term Papers
Note: This schedule of topics is flexible and time actually spent on each particular topic will depend on class interest.
Workload Components : A-B-C-D-E
A: no. of lecture hours per week
B: no. of tutorial hours per week
C: no. of lab hours per week
D: no. of hours for projects, assignments, fieldwork etc per week
E: no. of hours for preparatory work by a student per week