Module overview
This module familiarises students with central concepts and findings in decision theory. It will explore in detail how decisions should be made, introducing normative benchmarks such as rationality and consistency, and will present how decisions are made, using both empirical and experimental findings and theoretical arguments. The module will illustrate the concepts by examining decision-making in a variety of economic contexts and environments, and discuss possibly implications for economic policies in these contexts. These contexts include decisions under risk and uncertainty and over time.
Linked modules
Prerequisites: MANG2069 OR ECON2033 or ECON2044
Aims and Objectives
Learning Outcomes
Transferable and Generic Skills
Having successfully completed this module you will be able to:
- Make consistent and rational choices.
- Communicate logical arguments in brief statements
Knowledge and Understanding
Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:
- The relationship between economic policy recommendations and the assumptions on individuals' cognitive abilities and preferences that underlie such recommendations;
- Analytical methods in decision theory, both theory and model based.
- Relevant behavioural and cognitive phenomena that affect economic choices and decision-making.
Subject Specific Intellectual and Research Skills
Having successfully completed this module you will be able to:
- Derive optimal and predict actual behavioural choices in economic decision-making.
- Abstract essential features of economic decision-making to provide models of decison-making to evaluate (policy) changes in the decision environment.
- identify, analyse and interpret inconsistencies in choice data
- Apply logical analysis to decision-theoretic models and make use of inductive reasoning.
Syllabus
This module will begin by reviewing the concept of rational choice from first principles, deriving a normative theory of how to make decisions. It will then focus on a number of specific aspects of decisions, such as decisions under risk and uncertainty, and over time. The normative prescriptions of these models will be contrasted with empirical and experimental insights (e.g., equity premium puzzle, Allais Paradox, Ellsberg Paradox). The module will also consider some extensions that allow for seemingly non-rational behaviour, e.g., temptations or limits on attention. Throughout the module, emphasis will also be put on understanding the implications of behaviour of economic agents in relevant economic settings, such as buying insurance or saving for retirement, as well as the design of economic policies.
Learning and Teaching
Teaching and learning methods
Lectures, masterclasses, experiments.
| Type | Hours |
|---|---|
| Tutorial | 8 |
| Lecture | 20 |
| Independent Study | 122 |
| Total study time | 150 |
Resources & Reading list
Textbooks
C. Gollier (2004). The Economics of Risk and Time. MIT Press.
S. Tadelis (2013). Game Theory: An Introduction (Chapters 1&2). Princeton University Press.
M. Peterson (2017). An Introduction to Decision Theory. Cambridge University Press.
I. Gilboa (2009). Theory of Decision under Uncertainty. Economic Society Monographs.
Assessment
Assessment strategy
Two gourp assignments during the semester (each worth 15% of the final mark) and a final written examination at the end of the semester (70%), supported by continuous formative assessment such as problem sets and experiments. This is the same for internal repeats. Assessment for external repeats and referral is through 100% final examination only.
Summative
This is how we’ll formally assess what you have learned in this module.
| Method | Percentage contribution |
|---|---|
| Coursework assignment(s) | 15% |
| Final Assessment | 70% |
| Coursework assignment(s) | 15% |
Referral
This is how we’ll assess you if you don’t meet the criteria to pass this module.
| Method | Percentage contribution |
|---|---|
| Final Assessment | 100% |
Repeat
An internal repeat is where you take all of your modules again, including any you passed. An external repeat is where you only re-take the modules you failed.
| Method | Percentage contribution |
|---|---|
| Final Assessment | 100% |
Repeat Information
Repeat type: Internal & External