Behavioral Economics Workbench

A working study companion for Behavioral Economics (行为经济学), built from the two lecture decks supplied so far — Lecture 1 · Introduction and Lecture 2 · Choice under Certainty — and rearranged so that the models come first and the definitions can be moved rather than only read. The course is taught by Lu Yunfeng at Nanjing University.

Lectures 1–2 delivered · 81 slides Six interactive models Graded self-checks every lecture Installable · works offline

How this workbench is organised

the same five blocks in every lecture

1 · Concept Map

How the lecture's ideas build on one another, drawn as a chain rather than a list. Where a model is answering an earlier one, the arrow says so.

2 · Core Content

Explanatory prose around the slides, with the lecture's own experiments taken apart and the technical definitions stated exactly as the deck states them.

3 · Model Labs

Six figures you can drive. Where a lecture slide only reports a result, the lab lets you reproduce it, break it, and see which parameter is doing the work.

4 · Summary Sheet

The definitions, formulas and headline numbers of the lecture on one screen, in the order the lecture introduced them.

5 · Self-Check

Graded multiple choice with a written explanation for both the right and the wrong answer, plus reveal-style problems where the working matters more than the answer. Progress is kept per lecture.

Shishuo xinyu cases

Both lectures are threaded with stories from 《世说新语》. Each is kept as a case box beside the concept it illustrates, because the mapping from the story to the model is the point.

Flagged, not fixed

Where a slide is loose — a sample size that covers two different experiments, a result quoted without its numbers — the workbench says so in place instead of quietly tidying it.

Install it

Open the site on a phone and use “Add to Home Screen”. It then opens full-screen with no browser chrome and works with no network at all — including all six figures.

The six models

each one attached to the lecture that needs it

Model 1

The 1979 two-question experiment

Answer Problems 11 and 12 yourself, then see why they are the same question.
Compares your pair of answers against the published 1979 marginals.
The experiment every later lecture is built on.

Lecture 1

Model 2

Prospect theory

Drive α, λ and γ and watch the value function and the weighting function change shape.
Prices a 50/50 gamble and reports its certainty equivalent.
Explains why the Model 1 answers came out asymmetric.

Lecture 1

Model 3

The weak axiom, interactively

Set a choice function on four budgets and let the model hunt for a violation.
Links the abstract definition to Sen's Property α.
One preset is exactly the decoy pattern the lecture ends with.

Lecture 2

Model 4

The endowment effect

A mug market with 22 owners and 22 non-owners.
At λ = 1 it clears at exactly the 11 mugs neoclassical theory predicts.
Raises λ and the traded quantity collapses.

Lecture 2

Model 5

Decoy and compromise

The beer and battery experiments in attribute space.
Switch the third option on and off and watch the shares move.
Two different mechanisms, both violations of IIA.

Lecture 2

Model 6

Defaults and the status quo

The eleven-country organ-donation chart, from the slide.
A two-parameter model of what a default actually does.
Reproduces most of a 96-point international spread.

Lecture 2

What the course covers

from the topic slide of Lecture 1

The course splits into three parts. Individual decision making is where Lectures 1 and 2 sit: what a rational choice is, and the six documented ways actual choices depart from it. Strategic decision making takes the same questions into games, where what you should do depends on what you believe others will do. Application carries both into gender, culture and policy.

Part I

Individual decision making

Rationality · what the standard model assumes
Beliefs · heuristics, biases, overconfidence
Risk · prospect theory, reference points
Time · present bias, discounting

Lectures 1–2 here

Part II

Strategic decision making

Others · social preferences, inequality aversion
Games · level-k, quantal response equilibrium
Experimental markets and learning

Not yet posted

Part III

Application

Gender
Culture
Nudging and policy design

Not yet posted

Assessment and contact

as stated on the last slides of Lecture 1

Component	Weight	Detail
Classroom performance	20%	Discussion participation and presentation
Two problem sets	20%	Two sets across the semester
Final exam	60%	Everything in the lectures and the paper list

✉ Where things are posted

Email luyunfeng@nju.edu.cn. The QQ discussion group is 1085521262. The course runs an online double-auction experiment at veconlab.com; the session name used in the lecture was yfnj21.

Your progress

stored on this device only

Progress lives in this browser's local storage under the key be-progress-v1. Clearing site data or switching browser resets it, and it does not travel between the computer and the phone.

Lecture 1

Introduction

Source: lecture 1 introduction 2026.pptx — 47 slides Lu Yunfeng · Department of Economics Runs the opening classroom experiment

This lecture does three things. It runs an experiment on you in the first five minutes. It defines what behavioral economics is not — not a claim that people are irrational, not a rejection of the standard model — and states the three properties a departure has to have before it counts as a finding. And it sketches eighty years of history to explain how economics came to lose its psychological content in the first place, so that the project of putting it back can be seen for what it is.

The examinable core is the vocabulary: the three pillars of the neoclassical benchmark, the three properties of a behavioral finding, and the four currents that converged in the second half of the twentieth century. The opening experiment is worth doing rather than reading — it is the cleanest single demonstration in the course, and the two questions are the same question.

Concept map

how the lecture builds

ExperimentTwo questions that are one question. Most people answer them inconsistently.

a departure has to earn the name

SystematicDepartures share a direction; they are not noise.

PredictableThe direction can be stated before the experiment.

FormalizableStill utility maximisation — a different utility function.

measured against a benchmark

The three pillarsBelief · Preference · Equilibrium. Behavioral economics replaces their assumptions one at a time.

which is why the history matters

Economics and psychology were one subjectSmith, Bentham, Fisher, Keynes — up to the 1930s.

Then they separatedPareto, revealed preference, the as-if defence. A successful methodological retreat.

and why the reunion took four separate movements

Bounded rationalitySimon · satisficing

Cognitive biasKahneman & Tversky · heuristics

Experimental marketsVernon Smith · institutions can correct bias

NudgingThaler · RCTs in government

and how any of it gets tested

Lab experimentControl, but a selected subject pool

Field experimentArtefactual · framed · natural

Field dataIV · DID · RD

Structural estimationEstimate the parameters, then run counterfactuals

The experiment the lecture opens with

slides 2–5

The lecture begins with two questions put to the room, answered on paper before anyone sees the second one. They are Problems 11 and 12 of Kahneman and Tversky (1979), and they are the founding demonstration of the whole field: two decisions that are identical in final-wealth terms and that most people answer differently.

Model 1

The two-question experiment

Answer both, then read the reveal. The point is not which answer you gave but whether the two answers agree.

Why the two questions are the same question

Each question hands you a sum of money first, then offers a choice. Put the grant and the outcome together and the two problems have the same four terminal states:

Question	The gamble pays	The sure option pays
Q1 — grant ¥1,000, then choose	¥2,000 with p = 0.5, ¥1,000 with p = 0.5	¥1,500
Q2 — grant ¥2,000, then choose	¥2,000 with p = 0.5, ¥1,000 with p = 0.5	¥1,500

Anyone who takes the gamble in Q1 must take it in Q2. Kahneman and Tversky found that most people take the sure option in Q1 and the gamble in Q2 — which is exactly what the classroom experiment tends to reproduce.

→ The mechanism: the reference point moves

In Q1 the grant is the reference point, so the risky branch is read as a gain of ¥1,000 against a certain gain of ¥500 — and people avoid the risk. In Q2 the larger grant is the reference point, so the same two terminal states are read as a loss of ¥1,000 against a certain loss of ¥500 — and people take the risk.

Nothing about the outcomes changed. What changed is which side of the reference point they sit on. This is the isolation effect 隔离效应, and it is the reason Lecture 1 hands off to prospect theory.

! A figure on the slide that needs care

The comparison slide asks the class to fill in its own percentages and compare them against “the 68 subjects of 1979”. In the 1979 paper the two problems were run on different samples: Problem 11 on N = 70, Problem 12 on N = 68. The single N on the slide is Problem 12's. The published marginals are 84% choosing the sure option in Problem 11 and 69% choosing the gamble in Problem 12.

Worked What the 1979 marginals imply about the modal answer

Suppose the two answers were given independently. Then the share of subjects who took the sure option in Problem 11 and the gamble in Problem 12 is the product of the two marginals.

Share choosing B1 (the sure option) in Problem 11: 0.84
Share choosing the gamble in Problem 12 — i.e. rejecting the sure loss: 0.69
Product, under independence: 0.84 × 0.69 = 0.5796
As a percentage of the two samples: 58.0%

So the inconsistent pair — sure in Q1, gamble in Q2 — is the modal answer, at roughly 58% of respondents, while the consistent answer the final-wealth argument requires is close to a minority position.

The independence assumption is doing real work in that multiplication. The 1979 paper reports the two problems separately and never cross-tabulates them, so the joint share is a reconstruction, not a published number.

What behavioral economics is

slides 6–8

The lecture's definition is deliberately modest, and worth reading closely:

Using psychological evidence on how people actually decide to improve the behavioral assumptions of economics — not to overturn it, but to predict better.

A departure from the standard model only becomes a behavioral finding if it has all three of these properties. This is the test the course will apply all semester.

Systematic 系统的

Departures from the standard model share a common direction rather than being random noise — the same population departs in the same direction at different times.

Predictable 可预测的

Theory can state the direction and rough magnitude of a departure before the experiment is run. This is what separates it from after-the-fact narrative explanation.

Formalizable 可模型化的

The language remains utility maximisation: we replace the utility function, the discount function or the specification of beliefs, rather than abandoning the analytical toolkit.

Why the third one matters most 为什么第三条最关键

A finding that cannot be written into a model cannot generate a new prediction, and a claim that generates no new prediction cannot be refuted. All three properties are in service of being refutable.

The benchmark: the three pillars

Everything behavioral economics does is defined against this. Learn it as three columns, because the lecture's next slide replaces them column by column.

Pillar	What the standard model assumes
Belief 信念	Probabilistic judgment obeys the laws of statistics · new information is incorporated by Bayes' rule · beliefs about others' strategies are correct
Preference 偏好	Self-interest · expected utility, including the independence axiom · time consistency, i.e. exponential discounting
Equilibrium 均衡	Everyone is maximising · beliefs and strategies are mutually consistent · Nash equilibrium

The lecture's own defence of this benchmark: its predictions are sharp and falsifiable, which is a virtue — a model that cannot be wrong cannot be corrected either.

And what replaces them, one pillar at a time

Pillar	The behavioral replacement	Introduced
Belief	Heuristics and biases · biased and motivated beliefs · overconfidence	Week 6
Preference	Social preferences (inequality aversion) · prospect theory (reference points, loss aversion) · quasi-hyperbolic discounting (present bias)	Weeks 4–5, 7+
Equilibrium	Limited strategic thinking (level-k) · quantal response equilibrium · learning models	Weeks 14+

The weeks are read off the lecture's own topic slide and its cross-references; they are the instructor's sequencing, not a fixed syllabus.

Model 2

Prospect theory: the value function and the weighting function

This is the replacement for expected utility, and it is what makes the opening experiment come out the way it does. Drive the three parameters and watch both functions move.

→ How Model 2 explains Model 1

Put the gamble from Question 1 into the prospect value: a 50% chance of gaining ¥1,000 and a 50% chance of nothing. Under the default parameters the value of that gamble comes out well below the value of a certain ¥500, so the sure option wins — and the model predicts it without being told about the reference point, because the value function is kinked at zero and steeper below it.

Now re-code the same two branches as losses, which is what Question 2's larger grant does. The kink works the other way, the certain loss looks worse than the gamble, and the risk is taken. The asymmetry between the two questions is not a separate finding — it is the shape of one curve.

“Behavioral economics is not saying that people are irrational”

slide 9

The slide puts that sentence in quotation marks and then spends three points qualifying it. The qualifications are the examinable content.

1 · The departures are systematic

Because they have a direction and a regularity, they can be written into a model, used to make predictions, and refuted by data. Random error could not be any of those things.

2 · Markets correct some biases and amplify others

Vernon Smith's experimental markets converge to the competitive equilibrium. In an asset bubble, the same biases are amplified instead of washed out.

3 · Which case obtains is an empirical question

What the course trains is the method for making that judgement, not a ready-made position on whether markets work.

The question therefore always comes in two steps

Does the bias exist at the individual level? And under which institutions is it amplified, and under which is it eliminated? Point 2 is what makes the second step non-trivial — individual bias does not mechanically produce market-level deviation.

? The tension to hold on to

Point 1 says departures are systematic and therefore modellable. Point 2 says the market-level consequence is not determined by the individual-level bias. Those are consistent, and the lecture's framing depends on keeping them apart: behavioral economics is a claim about individual decision rules, and it is agnostic in advance about what aggregating them produces.

Case · Wang Rong, or: do preferences change?

slides 11–14

Before the history, the lecture puts a problem from fourth-century China next to the modern one. Wang Rong (王戎), one of the Seven Sages of the Bamboo Grove, appears in 《世说新语》 as two different people.

The child 《世说新语 · 雅量》

王戎七岁尝与诸小儿游，见道旁李树多子，折枝，诸儿竞走取之。唯戎不动。人问之，答曰：“树在道边而多子，此必苦李。”取之信然。

Aged seven, Wang Rong declines to pick plums from a roadside tree heavy with fruit: a tree by a road that still has fruit must bear bitter plums. He was right. The reasoning is impeccable — this is a seven-year-old running a selection argument.

The old man 《世说新语 · 俭啬》

王戎有好李，卖之，恐人得其种，恒钻其核。

王戎俭吝，其从子婚，与一单衣，后更责之。

Wang Rong owned good plums; he sold them and, to stop buyers from growing their own, drilled out the pits. He gave his nephew a single robe for a wedding and then asked for it back. And yet, in 《德行》, he refuses a fortune in condolence money after his father's death.

The slide's own reading is blunt: 王戎似乎变成了另一个人，前后行为不一致 — Wang Rong seems to have become a different person; his behaviour before and after is inconsistent. Behavioral economics, the slide says, holds that preferences change 偏好会发生改变: clever and generous when young, a miser by the end.

? The question the slide leaves open

How would the neoclassical model explain it? The standard model holds preferences fixed — a stable ordering over outcomes — and puts all the movement in constraints and information. So it has to say that what changed was not Wang Rong's taste for money but something else: his wealth, his expectations of the future, or his beliefs about what others would do with his plums. The behaviorist reading says the preference ordering itself moved.

These are different claims and they are not distinguished by the story. That is the point of putting the story next to the experiment: the experiment is what tells them apart.

☰ Why the deck uses 《世说新语》 at all

The lecture's own statement of method: a theory abstracted from the real world can be verified in the laboratory, and it can also be found in medieval China — the behaviour of the people in 《世说新语》 may be consistent with behavioral economics' insights.

A caution worth stating: a story that can be read as a preference reversal is not evidence of one. Every story below should be read the same way — as an illustration of a mechanism that the experiments establish, not as a substitute for them.

About the book itself

Title	《世说新语》 · A New Account of Tales of the World
Author · annotator	刘义庆著，刘孝标注
Structure	36 sections · 1133 anecdotes · over 1,000 people. Organised by the nature of the event, not by biography — 德行、言语、文学、政事、雅量、捷悟、企羡、贤媛、俭啬、纰漏 and so on.
Why the structure matters	Because it is thematic rather than chronological, one person's behaviour can be read across sections — which is exactly what makes the Wang Rong comparison possible. A conventional biography would have smoothed it over.

宗白华's assessment, quoted on the slide: the late Han–Wei–Six Dynasties was the most politically chaotic and socially miserable period in Chinese history, and yet the most free and liberated in spirit, the richest in wisdom and in passion — and therefore the most artistic.

The Nanjing connection 《世说新语 · 言语》

过江诸人，每至美日，辄相邀新亭，藉卉饮宴。周侯坐而叹曰：“风景不殊，正自有山河之异！”皆相视流泪。唯王丞相愀然变色曰：“当共戮力王室，克复神州，何至作楚囚相对？”

The émigré gentry, having crossed the Yangtze, would gather at Xinting on fine days. Zhou Yi sighed that the scenery was unchanged while the land was not, and everyone wept — until Wang Dao turned on them: we should be working to recover the north, not sitting here like prisoners. The gathering place and the court it defended are both in Nanjing, where these lectures are being given.

History of ideas

slides 15–17

I · For a long time, economics and psychology were one subject

1759

Adam Smith
The Theory of Moral Sentiments

1789

Bentham
on utility

1930

Fisher
on “impatience”

1936

Keynes
animal spirits

Four moments at which the psychological content was still inside the economics

1759 · Smith	Sympathy, a sense of fairness, social norms and self-command — seventeen years before The Wealth of Nations. The author of the invisible hand also wrote the book on moral sentiment, and the lecture's point is that this is not a contradiction to be explained away.
1789 · Bentham	Utility was defined directly as the psychological quantity of pain and pleasure, a sensation open to introspection. Note how far this is from the modern definition, in which utility is whatever a preference ordering can be represented by.
1930 · Fisher	The first systematic discussion of intertemporal choice, explicitly about self-control and foresight — the subject of his analysis was a person, not a discount factor.
1936 · Keynes	Animal spirits, and the beauty contest: prices depend on the market's expectations of others' expectations. The guessing game in week 14 is its experimental version.

II · The birth of homo economicus — a successful methodological retreat

Move	What it did
Pareto	At the end of the nineteenth century he argued that economics should separate from psychology: study choice, not desire.
Revealed preference	Samuelson grounded preference entirely in observable choice, clearing psychological content out of the theory.
The as-if defence	Friedman: assumptions need not be realistic so long as predictions are accurate — a defence of the highly simplified rational agent.

→ Why the lecture calls this a successful retreat

Economics gained rigorous analytical tools and a common language. That is not a loss to be mourned. What behavioral economics does is bring the psychological content back in a testable form — it does not ask for the tools to be given up.

This is the same point as the third property of a behavioral finding. The toolkit stays; the assumptions get replaced.

III · Four currents converge

#	Current	Principal	Contribution
1	Bounded rationality	Simon	People do not maximise; they satisfice
2	Cognitive bias	Kahneman & Tversky	Departures are systematic, identifiable and classifiable
3	Experimental markets	Vernon Smith	Bringing market institutions into the laboratory to ask when they work
4	Nudging and policy	Thaler, and RCTs	Turning findings into interventions that can be implemented and evaluated

The four currents, one at a time

slides 18–29

I · Bounded rationality — Simon

“ The claim, in Simon's words

“There is a complete lack of evidence that, in actual human choice situations of any complexity, these computations can be, or are in fact, performed.”

Notice what Simon is and is not claiming. He is not saying people choose badly. He is saying the computation the standard model demands exceeds what people can actually do — so the model cannot be describing the process, whatever it says about the outcome.

Satisficing 满意化

Do not search the whole option set; stop once an acceptable level is reached.

Three constraints on rationality

Incomplete information · limited computational capacity · costly time.

Implication for models

Replace “maximisation” with “stop when search costs bite”, and the predictions change.

The tell

This is the first current in the lecture that changes the process rather than the objective. Prospect theory will change the objective; Simon changes the procedure.

Simon's memoir Models of My Life is on the slide, and the three books below are the lecture's recommended route into the field — none of them is a textbook, and the slide asks you to finish at least one this semester.

Thinking, Fast and Slow	Daniel Kahneman	The two-systems framework; the spine of week 6
Misbehaving	Richard Thaler	The fullest narrative history of the field
The Undoing Project	Michael Lewis	The collaboration of Kahneman and Tversky, and its breakdown

II · Cognitive bias — Kahneman and Tversky

Judgment relies on a few heuristics — representativeness, availability, anchoring — which work in most situations and necessarily produce bias in particular ones. “Necessarily” is the load-bearing word: a shortcut that always worked would not be a bias.

Richard Thaler (Nobel 2017) carries the same programme into policy, from mental accounting to nudging — the main figure behind behavioral economics entering the world of government.

III · Experimental markets — Vernon Smith

In a double auction, each subject knows only their own private valuation. Nobody knows where the supply and demand curves lie — there is no posted price and no auctioneer reading out excess demand. Yet after a few rounds of trading, prices converge to the competitive equilibrium price and quantities to the equilibrium quantity.

! Why this matters for the whole course

Behavioral economics is most easily misread as “markets do not work”. Smith's results are a reminder that bias at the individual level need not translate into price deviations at the market level. Whether an institution corrects bias is an empirical question, and it has different answers for different institutions.

Smith shared the 2002 Nobel Prize with Kahneman — experimental method and psychological evidence were recognised together, which is the lecture's way of saying the two halves belong to one programme.

The lecture's own classroom version of this is the online double auction at veconlab.com: 4 rounds of transactions, 79 participants in the session whose results are shown. Two treatments were run and their transaction prices converged to different levels — the blue series settling near $6 and the red near $7, against a supply–demand crossing at a little under $7.

Those two levels are read off the rendered results chart on slide 46 — the chart is an image, not text, and its price axis is gridded at $1 intervals, so the figures are approximate to about half a dollar. The precise treatment definition is not stated on the slide.

IV · Nudging and policy — Thaler, and the RCT

Case	What changed	Effect
The UK nudge unit	The Behavioural Insights Team, founded 2010, applied randomised controlled trials to everyday administration: tax collection letters, organ donation registration, employment services.	—
The neighbours on the electricity bill	Adding a comparison with neighbours' consumption to the bill.	≈ 2% less household electricity Allcott (2011)
Interventions in developing countries	From the pricing of bed nets to small incentives for vaccination, RCTs became the standard tool for evaluating anti-poverty policy (Banerjee & Duflo).	—

! The lecture's own caution on the electricity result

Two per cent is enough to justify a rollout, but a limited effect that should not be overstated. A statistically robust and policy-relevant effect can still be a small one, and the slide says so rather than letting the number speak for itself.

One change of default, inside an app you use every day

The clearest case on the slides is a food-delivery platform that changed disposable cutlery from included by default to something the user has to tick a box for, paired with a small green-points reward.

Case Why this is anomalous

The change removed no one's options and raised no one's costs. The feasible set is unchanged and so are prices.

Under the standard model the default should not affect choice — nothing in the constraint set or the price vector moved.
The observed change in the share of “no cutlery” orders: +648%
Whether this is a bias or a correction is not settled by the size of the number. A user who simply never thought about cutlery is being helped; a user who wanted cutlery is being inconvenienced. The experiment measures the response, not the welfare.

This is the class of phenomena weeks 4–5 are devoted to, and the reason the default is described in the lecture as one of the most powerful methods of behavioral nudge.

He, Pan, Park, Sawada & Tan (2023), “Reducing single-use cutlery with green nudges: evidence from China's food-delivery industry”, Science 381(6662).

The same method, under its industry name

A/B testing is a randomised controlled trial. An engineer at Microsoft Bing proposed changing the way ad headlines were displayed. The idea was judged low priority and sat for six months. Once launched as an A/B test, search advertising revenue rose about 12% — more than 100 million dollars a year.

! The one thing the slide asks you to remember

Expert prior judgement kept the proposal on the shelf for six months; a randomised experiment overturned that judgement within days. This is exactly why the course teaches experimental method: intuition predicts behaviour far less reliably than we think.

Note the symmetry. The same argument was used against behavioral economics a few slides earlier — that our intuitions about how people decide are unreliable. It applies to the researcher's intuitions too.

Source, as cited on the slide: public reports by Kohavi and co-authors on online controlled experiments at Bing.

Empirical methods

slides 32–40

Four slides, four methods. The lecture's framing is that every one of them is a way of answering the causality question, and they differ in how much control the researcher has and how much the setting resembles the world.

Lab experiment

Design concerns

Experimental instructions · anonymity · matching protocols and reputation building · incentives · order effects · within-subjects versus between-subjects design · study, treatment, session · statistics for the experimenter: t-test and nonparametric tests.

Forms

Pen and pencil · online survey (Qualtrics, 问卷星) · z-Tree / oTree, which is based on Python.

Procedure, in order

Experimental design → IRB application → writing the programs and the instructions → subject recruitment → running the session (consent form, reading the instructions, payment) → analysing the data.

Why the IRB step is not administrative

Deception, payment and anonymity are all design variables here, not housekeeping. Changing the anonymity rule changes the behaviour you are measuring.

Field experiment

Type	Definition
Artefactual field experiment	A conventional lab experiment but with a nonstandard subject pool
Framed field experiment	Subjects know they are in the experiment
Natural field experiment	Subjects do not know they are in the experiment

The slide's own aside on this slide — “Chinese medicine? Randomised double-blind large sample experiment?” — is a rhetorical question about the standard of evidence implied by the phrase, not a fourth category.

Field data

Data sets are public surveys, micro data sets and administrative data. The empirical strategy is identification: find the natural experiment that pins down causality. The slide lists four approaches.

#	Strategy	What identifies the effect
1	Experimental ideal	Randomisation itself
2	Instrumental variable	A variable that moves the treatment but nothing else — the slide's examples are weather and government policies
3	Difference-in-differences	Control group and treatment group, before and after
4	Regression discontinuity	A threshold rule that assigns treatment

DID Real-time feedback and resource conservation

Tiefenbeck et al. (2016), Management Science. Participants: 636 one- and two-person households in Switzerland. A smart shower meter displays energy and water use in the shower itself.

Control condition — no feedback on water; only the temperature is displayed.
Real-time feedback condition — the meter shows consumption as it happens.
Real-time plus past feedback condition — consumption now, and the history alongside it.

Resource use drops by 22% upon activation of the display, and the treatment effect remains stable throughout the study (p < 0.01).

Two details from the figure's own note: the energy and water series move almost identically, with a correlation coefficient of 0.989; and the difference-in-differences design is what makes the drop attributable to the display rather than to the passage of time, since the control group's consumption drifts too.

The design shows why DID is needed rather than a simple before/after: in the figure, the control group's usage also falls across the study. Only the difference between the two paths identifies the treatment effect. Note also that “stable throughout” is a stronger and more useful result than “significant on average” — it rules out a novelty effect that decays.

Structural estimation

Assuming the economic theory is correct, use the data to estimate the value of the key parameters with statistical methods such as maximum likelihood estimation. The estimated parameters and the model are then used to do counterfactual policy analysis.

The slide's examples: risk-aversion parameters in utility models, and the cognitive hierarchy model. Both are parameters that cannot be observed directly — you recover them by asking what value would make the observed choices most likely.

→ How the four methods relate

Lab and field experiments create the variation. Field data finds variation that already exists. Structural estimation takes a model as given and asks what its parameters must have been. The first three are about identification; the fourth is about measurement, and it is the only one that can answer a question about a policy that has never been run.

Summary sheet

printable

Behavioral economics 行为经济学

Using psychological evidence on how people actually decide to improve the behavioral assumptions of economics — not to overturn it, but to predict better.

The three properties

Systematic · Predictable · Formalizable. A departure with only the first two is an anecdote; with only the first and third it is a curve fit.

The three pillars

Belief — Bayes' rule, correct beliefs about others · Preference — self-interest, expected utility, exponential discounting · Equilibrium — mutual best response, Nash.

The four currents

Simon (bounded rationality) · Kahneman & Tversky (cognitive bias) · Vernon Smith (experimental markets) · Thaler (nudging and policy).

Isolation effect 隔离效应

Choices are made relative to a reference point supplied by the framing, not over final wealth. The 1979 two-question experiment is its cleanest demonstration.

Satisficing 满意化

Stop searching once an acceptable level is reached, rather than searching the whole option set for the maximum.

Field experiments, by degree of disguise

Artefactual — lab protocol, nonstandard pool · Framed — subjects know · Natural — subjects do not know.

The four identification strategies

Experimental ideal · instrumental variable · difference-in-differences · regression discontinuity.

Key concepts

English term · 中文

Term	中文	Meaning in this lecture
Behavioral economics	行为经济学	Improving the behavioral assumptions of economics with psychological evidence, keeping the analytical toolkit.
Neoclassical benchmark	新古典基准	The three pillars — belief, preference, equilibrium — whose predictions are sharp and therefore falsifiable.
Isolation effect	隔离效应	Choices depend on the framing of the components rather than on final wealth. Problems 11 and 12 of Kahneman & Tversky (1979).
Reference point	参照点	The state against which outcomes are coded as gains or losses. The grant in each question moves it.
Bounded rationality	有限理性	Simon: the computation the standard model requires exceeds what people can perform, so the model cannot describe the process.
Satisficing	满意化	Search stops at an acceptable level rather than continuing to the maximum.
Heuristic	启发式	A judgment shortcut that works in most situations and necessarily produces bias in particular ones — representativeness, availability, anchoring.
Double auction	双向拍卖	A market institution in which buyers and sellers both post bids and offers. Prices converge to the competitive equilibrium even with no public information about the curves.
Nudge	助推	An intervention that changes behaviour without removing options or changing prices — a change of default is the standard example.
A/B test	A/B 测试	A randomised controlled trial run on a live product. The Bing headline case: about 12% more advertising revenue.
Difference-in-differences	双重差分	Comparing the change in a treatment group against the change in a control group, because the control group's path is not flat.
Structural estimation	结构估计	Recovering unobservable parameters — risk aversion, strategic depth — by maximum likelihood, then running counterfactual policy analysis with them.

Self-check

graded, with explanations

0 / 0 correct

The opening experiment

Q1Kahneman and Tversky's Problems 11 and 12 put different sums in the subject's hand before the choice. Why does that make the two problems the same problem?

Correct.Each problem is a grant plus a choice. Q1: ¥1,000 grant, then either +¥1,000/+¥0 or +¥500 — giving ¥2,000/¥1,000 or ¥1,500. Q2: ¥2,000 grant, then either −¥1,000/−¥0 or −¥500 — giving ¥1,000/¥2,000 or ¥1,500. Same four states, same probabilities.

Not quite.Work out the terminal wealths rather than reasoning about the grants in the abstract. Add each grant to each branch of each question. The probabilities are in fact identical across the two problems; what the question turns on is the amounts lining up after the grant is added.

Q2A subject takes the sure option in Q1 and the gamble in Q2. On the lecture's account, what has happened?

Correct.The grant becomes the reference point. In Q1 the sure branch is a gain of ¥500 against a possible ¥1,000 — risk is avoided. In Q2 the sure branch is a loss of ¥500 against a possible ¥1,000 loss — risk is taken. This is the isolation effect, and prospect theory is built to predict its direction.

Not quite.The stakes are the same in both questions once the grant is added — that is the whole point of the experiment. And the pattern is not undescribable: prospect theory states its direction in advance, which is what makes it a behavioral finding rather than a curiosity.

Definition and benchmark

Q3Which of these is not one of the three properties a behavioral departure must have?

Correct.The three are systematic, predictable and formalizable. Whether an intervention improves welfare is a separate question — one the lecture raises about the cutlery nudge precisely because the size of the response does not settle it.

Not quite.The slide lists exactly three: the departure has a direction, the direction can be stated before the experiment, and the departure can be written into a maximisation problem. Welfare is not on the list.

Q4Under the neoclassical benchmark, what does the Preference pillar assume?

Correct.Bayes' rule belongs to Belief; mutual consistency and universal maximisation belong to Equilibrium. The three replaceable pieces of the Preference pillar are self-interest, expected utility and exponential discounting — and those are exactly the three the behavioral column replaces with inequality aversion, prospect theory and quasi-hyperbolic discounting.

Not quite.Sort the options by pillar. Bayes' rule is a claim about belief formation; mutual consistency and universal maximisation are claims about equilibrium. Only one option lists pieces of the preference ordering itself.

History and the four currents

Q5The lecture calls the separation of economics from psychology a “successful methodological retreat”. Why successful?

Correct.The retreat bought rigour. Pareto, Samuelson's revealed preference and Friedman's as-if defence cleared psychological content out — and behavioral economics does not ask for the toolkit back, only for the assumptions to be replaced one at a time.

Not quite.Re-read the last line of that slide: the retreat succeeded, economics gained rigorous tools and a common language, and what behavioral economics does is bring the psychological content back in a testable form. The as-if defence is a defence of simplified agents, not a proof that assumptions never matter.

Q6Vernon Smith's double-auction experiments are on the slides because they complicate which claim?

Correct.In a double auction nobody knows where the curves lie, yet prices converge to the competitive equilibrium. So bias at the individual level need not show up as a price deviation — whether an institution corrects bias is an empirical question, which is why the course asks its question in two steps.

Not quite.Smith's results are not evidence that individuals are rational, nor a failed replication of anything. The convergence happens despite individual-level limits, which is why they are a warning against reading “behavioral” as “markets do not work”.

Methods

Q7Subjects are recruited at a market and do not know that anything about their visit has been manipulated. Which type of field experiment is this?

Correct.The distinguishing feature is exactly whether subjects know they are in the experiment. Framed — they know. Natural — they do not. Artefactual — a conventional lab protocol with a nonstandard pool, so the subjects know perfectly well. C and D name the same thing.

Not quite.The slide defines the three types along one dimension only: how much the subjects know. Options C and D describe each other — an artefactual experiment is a lab experiment with a nonstandard subject pool — which is your clue that neither is the answer.

Q8The Tiefenbeck study reports that resource use falls 22% when the shower display is activated, and that the effect is stable throughout. Explain why the design needs a control group, and why “stable” is a stronger claim than “significant”.

Why the control group is needed. The reported drop is a before/after comparison, and a before/after comparison confounds the treatment with everything else that changes over the study period — the season, the price of energy, the households' own habits. In the study's own figure the control group's consumption also drifts downward across the 70 showers. Only the difference between the two paths identifies the effect of the display. That is the difference-in-differences design: control group and treatment group, before and after.

Why “stable” is stronger. A significant average effect is compatible with a large immediate response that decays to nothing — a novelty effect. Because the display is an intervention that people could simply stop attending to, decay is the natural alternative hypothesis. The design has three arms precisely to test it: the third arm adds past consumption to the display, and if the effect were a short-lived novelty the two feedback arms would separate over time. Reporting that the effect holds through the study, with p < 0.01, is a claim about the whole path rather than about the mean.

The lesson the lecture is drawing. This is what “a departure has to be predictable and formalizable” buys you. “People use less water when shown their use” is not yet a finding; “the response is immediate, large, and does not decay over 70 showers” is, because a model of attention or of habit could have predicted the opposite and been refuted.

Lecture 2

Choice under Certainty

Source: lecture 2 choice under certainty.pptx — 34 slides Based on MWG Ch. 1 and Rubinstein, Lecture Notes, Ch. 1–3 Twelve slides are images, not text

The lecture has two halves that look unrelated and are not. The first half — about two thirds of the slides — builds the standard theory of choice from nothing: a preference relation, the two axioms that make it rational, a utility function that represents it, and then an entirely separate construction that starts from observed choices instead of from preferences. The second half lists six ways actual choices depart from that theory.

The connection is the weak axiom. The first half proves that a rational preference relation generates a choice structure satisfying it, and — the harder direction — that a choice structure satisfying it can be rationalised by a preference relation. The second half is a catalogue of violations. Every one of the six behaviors is a way for a real choice function to fail the weak axiom, and the lecture's experiments are designed to make the failure visible in a statistic.

Much of the technical content — every definition and the whole of the weak-axiom development — is on slides that are images rather than text. Everything quoted from them here was read off the rendered slide.

Concept map

how the lecture builds

Two routes to the same objectStart from preferences, or start from choices. The lecture develops both and then links them.

route one — the mental attitude

Preference relation ≽A binary relation on X: “at least as good as”.

Definition 1 · rationalComplete + transitive.

Definition 1aDerive strict preference > and indifference ~ from ≽.

Dutch bookWhy transitivity is not bookkeeping — intransitive preferences can be pumped for money.

and its numerical representation

Definition 2 · utility functionu represents ≽ when x ≽ y ⟺ u(x) ≥ u(y).

Proposition 1Representable ⟹ rational. Not the converse.

Non-uniquenessv = f(u) for any strictly increasing f represents the same preferences.

Finite XRational ⟹ representable, provided X is finite.

route two — the observable choice

Choice structure (2^B, C())A rule assigning a nonempty chosen set to every budget.

The weak axiomAn element chosen when y was available cannot lose to y in a smaller budget.

Sen's Property α / IIAx ∈ B ⊆ A and x ∈ C(A) ⟹ x ∈ C(B).

the link, in both directions

Proposition 2Rational ≽ ⟹ the C() it generates satisfies WA.

Definition 4 · rationaliseC(B) = C*(B, ≽) for every budget B.

Proposition 3WA + every subset up to three elements ⟹ a rational ≽ rationalises C(), and it is unique.

and then the violations

Mental accountingMoney is not fungible across accounts

Sunk costPast outlays affect current choice

FramingWording moves the choice

EndowmentWTA above WTP

Status quoThe default decides

Menu dependenceDecoy and compromise effects

The preference-based approach

slides 3–6

The lecture opens with the route that starts inside the head. Note the phrase it uses for the primitive: preferences are a mental attitude. Everything below is the standard development from MWG Chapter 1, and the deck states it with its own numbering.

Def 1 Rationality of a preference relation

≽ is a binary relation on the set of alternatives X, allowing the comparison of pairs of alternatives x, y ∈ X. Read x ≽ y as “x is at least as good as y”.

The preference relation ≽ is rational if it possesses the following two properties:

Completeness 完备性

For all x, y ∈ X, we have that x ≽ y or y ≽ x (or both).

Transitivity 传递性

For all x, y, z ∈ X, if x ≽ y and y ≽ z, then x ≽ z.

“Or both” in completeness is doing work: it is what allows indifference to be derived rather than assumed. Completeness requires a ranking to exist; it does not require it to be strict.

阮宣子 and “将无同” 《世说新语 · 文学》

阮宣子有令闻，太尉王夷甫见而问曰：“老庄与圣教同异？”对曰：“将无同。”太尉善其言，辟之为掾。世谓“三语掾”。卫玠嘲之曰：“一言可辟，何假于三？”宣子曰：“苟是天下人望，亦可无言而辟，复何假一？”遂相与为友。

Asked whether Daoism and Confucianism agree, Ruan Xuanzi answers “将无同” — something like “probably not different” — and is appointed on the strength of it. The slide's question: if “将无同” is taken as a preference relation, what is it? （注：据《晋书》与考证，应为阮瞻，而非阮修。）

The answer the definition supplies: it is a relation that declines to rank. It asserts neither x ≽ y nor y ≽ x with any confidence — which is exactly a failure of completeness. It is not indifference: indifference is the positive claim that both directions hold, and 将无同 does not claim that either. Under Definition 1 this relation is not rational, and no utility function represents it.

Def 1a Splitting ≽ into two relations

x > y ⟺ x ≽ y but not y ≽ x strict preference

x ~ y ⟺ x ≽ y and y ≽ x indifference

Claim. If ≽ is rational then:

> is irreflexive — not x > x
> is transitive
> is anti-symmetric — x > y ⟹ not y > x
~ is reflexive, transitive and symmetric
If x > y ≽ z, then x > z

The slide's proof of the whole claim is one word: easy. The last item is the one worth doing — it is the mixed case, where a strict preference is followed by a weak one, and its proof is the only one that uses completeness.

Why The Dutch book argument

Why do we need transitivity for a rational preference? The slide's answer is a money pump.

Person P has an intransitive preference: x > y, y > z, z > x. P initially holds option x.
Merchant M sells P option z for x + ε, where ε is a small amount of money. P accepts, because z > x.
M sells P option y for z + ε. P accepts, because y > z.
M sells P option x for y + ε. P accepts, because x > y.
P is back where they started, holding x, having paid out 3ε

P has given 3ε to M for nothing. The slide adds the observation that this is possible in the market situation — the argument is not a thought experiment about an impossible agent.

The argument is a coherence argument, not a moral one. It does not say an intransitive person is foolish; it says an intransitive person's choices are not defended by any ranking, so nothing in the agent rules out the loss. Note also what it does not show: the pump requires someone to know your preference cycle and to be able to make you the offers, and each round must be worth more than ε to you.

The utility function

slide 7

Def 2 Representing a preference relation

A function u: X → R is a utility function representing the preference relation ≽ if, for all x, y ∈ X, x ≽ y ⟺ u(x) ≥ u(y).

Remark — the representation is not unique. If u represents ≽, then so does v(x) = f(u(x)) for any strictly increasing function f.

This remark is the reason “utility” in modern economics is not a quantity of anything. Only the ordering is identified; the numbers are a convenient encoding of it. It is also the licence that behavioral economics later uses to replace the utility function without abandoning maximisation.

Prop 1 Representation implies rationality

A preference relation ≽ can be represented by a utility function only if it is rational.

representation ⟹ rational preference

Proof: easy. The slide then asks the other direction and answers it in two parts.

Can any rational ≽ be described by some utility function?	No in general. Rationality alone is not enough when X is infinite — the lexicographic ordering on the plane is the standard counterexample.
If X is finite?	Yes. Claim: if X is finite and ≽ is a rational preference relation on X, then there is a utility function u: X → R representing ≽. Proof: not required

Keep the asymmetry straight, because it is an easy exam question: representation always implies rationality; rationality implies representation only under an extra condition, and finiteness of X is sufficient (not necessary).

The choice-based approach and the weak axiom

slides 8–10

The second route refuses to talk about mental attitudes at all. It starts from what people are observed to pick.

Two collectors 《世说新语 · 雅量》

祖士少好财，阮遥集好屐，并恒自经营，同是一累，而未判其得失。人有诣祖，见料视财物。客至，屏当未尽，馀两小簏箸背后，倾身障之，意未能平。或有诣阮，见自吹火蜡屐，因叹曰：“未知一生当箸几量屐？”神色闲畅。于是胜负始分。

Both Zu Shao and Ruan Yaoji had a collecting habit — one money, one clogs — and neither ranked above the other, until a visitor watched each of them handling his hoard. Zu, caught mid-count, tries to hide two baskets behind him and is visibly uncomfortable; Ruan, waxing his clogs by his own fire, sighs that he does not know how many pairs a life can wear, and is perfectly at ease. 「于是胜负始分」 — only then were they ranked.

The slide's gloss is the definition of the second approach: 从外显行为的细微之处来推测内在偏好的差异 — infer the difference in inner preference from the fine detail of outward behaviour. Choice-based analysis is based on choice rather than preference.

Def 3 The choice structure and the weak axiom

2^B is the family (set) of nonempty subsets of X. C() is a choice rule that assigns a nonempty set of chosen elements C(B) ⊆ B for every budget set B ∈ 2^B, where ∅ ∉ 2^B.

The choice structure (2^B, C()) satisfies the weak axiom (WA) of revealed preference if the following property holds:

If for some A ∈ 2^B with x, y ∈ A we have x ∈ C(A), then for any B ∈ 2^B with x, y ∈ B and y ∈ C(B), we must also have x ∈ C(B).

Remark, in the slide's own words: the weak axiom says that if x is ever chosen when y is available, then there can be no budget set containing both alternatives for which y is chosen and x is not.

Equivalently, and contrapositively: revealing a preference for x over y in one budget forbids revealing the opposite in another. The axiom is the minimum coherence you would require of a set of choices before you were willing to call them evidence about a ranking — and Proposition 3 will show it is also enough.

Model 3

The weak axiom, interactively

Set a choice function on four budgets and let the model hunt for a violation. Two of the three presets violate the axiom; the point is to see exactly which pair of budgets does it.

The Independence of Irrelevant Alternatives

slide 10

IIA Sen's Property α — a necessary condition for WA

If x ∈ B ⊆ A and x ∈ C(A), then x ∈ C(B)

In words, from the slide: x is chosen from a set of alternatives A, and B is a subset of A that contains x, then x must be chosen from B. That is, eliminating some of the unchosen alternatives shouldn't affect the selection of x as the best option.

≡ The two conditions are equivalent here, not nested

The slide presents Property α as a necessary condition for the weak axiom. For a choice rule that always returns a nonempty set — which is what Definition 3 assumes — the other direction also goes through, so on this domain the two are equivalent and either can be used as the test.

The reverse step: suppose WA holds, x ∈ C(A) and x ∈ B ⊆ A, but x ∉ C(B). Since C(B) is nonempty, pick y ∈ C(B) with y ≠ x. Now x ∈ C(A) with x, y ∈ A, and y ∈ C(B) with x, y ∈ B, so WA forces x ∈ C(B) — a contradiction.

Nonemptiness is doing real work in that argument. If C(B) were allowed to be empty the equivalence would fail — which is exactly why the deck states ∅ ∉ 2^B when it defines the choice structure.

! What IIA rules out, in one sentence

It rules out menu effects. If your choice from {x, y} depends on whether z is also on the menu, then z was not irrelevant to your choice. Every one of the six behaviors in the second half of this lecture is, formally, a menu effect — and Model 5 is the sharpest of them.

The link between the two approaches

slide 11

Prop 2 Rationality generates a choice structure that satisfies WA

Suppose that ≽ is a rational preference relation. Then the choice structure generated by ≽, written (2^B, C*(·, ≽)), satisfies the weak axiom.

Proof: easy — see MWG p. 12

Def 4 What it means to rationalise a choice rule

Given a choice structure (2^B, C()), we say that the rational preference relation ≽ rationalises C() relative to 2^B if

C(B) = C*(B, ≽) for all B ∈ 2^B

that is, if ≽ generates the choice structure (2^B, C()).

Prop 3 The converse — and this is the payoff of the whole first half

If (2^B, C()) is a choice structure such that (1) the weak axiom is satisfied, and (2) 2^B includes all subsets of X of up to three elements,

then there is a rational preference relation ≽ that rationalises C() relative to 2^B — that is, C(B) = C*(B, ≽) for all B ∈ 2^B. Furthermore, this rational preference relation is the only preference relation that does so.

Proof: not required

→ What Propositions 2 and 3 together buy you

Proposition 2 says rationality is sufficient for WA. Proposition 3 says WA plus a small richness condition on the domain is sufficient for rationality — and moreover pins the preference relation down uniquely. Together they mean that on this domain, “acts like a utility maximiser” and “satisfies the weak axiom” are the same claim.

That is why the rest of the lecture can treat the six experiments as tests of a single hypothesis. Demonstrating that a choice is menu-dependent is not a demonstration that some particular utility function is wrong; it is a demonstration that no utility function fits.

The three-element condition is not decoration. It is what gives the argument enough pairwise comparisons to build a full ordering — with only pairs available, WA can be satisfied by choice functions that no ranking generates.

Six departures from rational choice

slide 12 and the rest of the lecture

The slide lists them in one go, and the lecture then takes six slides to do them. Each entry below gets the same three things: what was done, what came out, and which axiom it breaks.

Departure	中文	The one-line version	Broken by
Mental accounting	心理账户	Money is not fungible across the accounts you keep it in	§8
Sunk cost fallacy	沉没成本谬误	Past outlays that cannot be recovered still move the current choice	§9
Framing effect	框架效应	The same options, worded differently, produce different choices	§10
Endowment effect	禀赋效应	Willingness to accept exceeds willingness to pay for the same object	§11
Status quo bias	现状偏差	People choose what they were initially given	§12
Menu dependence	菜单依赖	Adding an option nobody would pick changes what is picked	§13

Mental accounting 心理账户

slide 13

A / B The lost ticket and the lost note

(A) Imagine that you have bought a ticket for a show for $40. When you reach the theatre you discover that you have lost the ticket. You can buy another ticket at the same price. Will you do so?

(B) Imagine that you intend to go to a show. When you take your wallet out of your pocket to pay for the $40 ticket, you discover that you have lost $40, but you still have enough cash to buy a ticket. Will you do so?

Facing the same options, more people choose to buy the ticket in situation B than in situation A.
In situation A, people think of the cost of seeing the show as $40 + $40 = $80 — which feels too high.
In situation B, the lost $40 is unrelated to the ticket price. The show still costs $40.

Under mental accounting, money is nonfungible across different accounts.

Formally: the two situations have identical final-wealth consequences. Losing a $40 ticket and losing $40 are the same loss. What differs is which mental account the loss is booked against — the entertainment account in A, some general account in B.

! Identify the violation precisely

Note which axiom this breaks, because it is not the obvious one. Preferences over final wealth are perfectly consistent here; nothing about transitivity is at stake. What fails is the definition of the budget set itself: if money is not fungible, then the feasible set is not the set of affordable bundles, and the objects being chosen are not the ones the theory is ranking. The subject in A is choosing between “show at an effective price of $80” and “no show”; the subject in B is choosing between “show at $40” and “no show”.

Sunk cost 沉没成本

slides 14–16

In scenario (A) above, people's buying decision is influenced by the lost ticket. The lecture's statement of the standard: a sunk cost should not be considered in rational decision making — don't cry over spilled milk.

王子猷 and the trip he did not finish 《世说新语 · 任诞》

王子猷居山阴，夜大雪，眠觉，开室，命酌酒。四望皎然，因起仿偟，咏左思招隐诗。忽忆戴安道，时戴在剡，即便夜乘小船就之。经宿方至，造门不前而返。人问其故，王曰：“吾本乘兴而行，兴尽而返，何必见戴？”

Wang Ziyou wakes to snow, drinks, recites a poem, suddenly remembers his friend Dai Andao, and sets off by boat at night. He travels all night, arrives at the door, and turns around without knocking. Asked why: “吾本乘兴而行，兴尽而返，何必见戴？” — I set out on an impulse and I turn back when the impulse is spent; why must I see Dai?

The slide reads this as the sunk cost fallacy inverted and avoided: a night's travel is a large unrecoverable outlay, and the reason for the trip — the impulse — is what justifies the trip, not the distance already covered. When the impulse is exhausted, so is the reason. The cost already paid is correctly ignored. (The slide's own gloss: 「沉没之费，或舍或执」 — the sunk cost is either released or clung to.)

Field Do Singapore's expensive cars get driven more?

Ho, Png and Reza (2016). Buying a car in Singapore carries a very high sunk cost — the Certificate of Entitlement, taxes, and so on.

High-sunk-cost cars drive more.
Driving time decreases with the car's age.
The decrease between driving time and car age is larger for the high-sunk-cost cars.

The third finding is the one that identifies the mechanism. All cars are driven less as they age; what matters is that the expensive ones decay faster toward the common level — the signature of a sunk-cost effect wearing off as the outlay recedes into the past.

The figure on the slide plots average monthly usage by car age for three registration years, with average sunk costs of 16,921, 15,301 and 13,261 Singapore dollars, for the most popular model in the sample (3,403 cars). Usage starts high — around 2,700 km a month at five months — and flattens near 1,500 km by the mid-80s. The ordering of the three lines follows the ordering of the sunk costs for most of the range, which is the regression's raw material. The vertical axis is in kilometres and the sunk costs are in Singapore dollars — the figure's own note reads “average sunk cost S$”, which is the standard abbreviation for the Singapore dollar.

Framing effect 框架效应

slides 17–21

朝三暮四《庄子 · 齐物论》

狙公赋芧，曰：“朝三而暮四。”众狙皆怒。曰：“然则朝四而暮三。”众狙皆悦。名实未亏而喜怒为用，亦因是也。

The monkey keeper announces three chestnuts in the morning and four in the evening, and the monkeys are furious; he offers four in the morning and three in the evening, and they are delighted. 「名实未亏而喜怒为用」 — the substance is untouched, yet joy and anger were put to work. 「狙：猴子」

Zhuangzi's own verdict is the framing effect stated sixteen centuries early: the total is the same and the reaction is not. The slide's question, 你能解释这一结果吗？, is answered by the Asian disease experiment a slide later.

1981 Tversky & Kahneman, the Asian disease problem

Two versions of the same problem, given to two different groups. N = 152 saw the first, N = 155 saw the second.

Framed as lives saved	Chose
Program A — 200 people will be saved	72%
Program B — 1/3 probability that 600 will be saved, 2/3 probability that no one will be saved	28%

Framed as lives lost	Chose
Program C — 400 people will die	22%
Program D — 1/3 probability that nobody will die, 2/3 probability that all 600 will die	78%

A and C describe exactly the same outcome: 200 saved out of 600 is 400 dead out of 600.
B and D describe exactly the same lottery.
Yet A beats B by 72% to 28% when framed as saved, and C loses to D by 22% to 78% when framed as lost.
The reversal is complete: the modal choice in the first frame is the least popular option in the second.

Under the “saved” frame people are risk-averse — take the certain 200. Under the “died” frame they are risk-seeking — take the gamble. Same outcomes, opposite attitude to risk.

Why Why this is a violation of rationality

The preference is not stable: x > y in one frame, while y > x in another frame. A preference relation is a function of the alternatives; if it changes with the description, it is not a function of the alternatives.

Slide 21's statement of the general phenomenon is worth keeping verbatim: framing effects: people change their choices when the changes in the options are inconsequential — different wordings, settings, and situations.

Connect this back to §2. The reversal is a violation of completeness as a property of a fixed relation, not of transitivity. And connect it forward: the mechanism is the same reference-point shift as in the two-question experiment of Lecture 1 — “lives saved” makes 600 alive the reference point, “lives lost” makes 600 dead the reference point.

Endowment effect 禀赋效应

slides 22–23

1990 Kahneman, Knetsch & Thaler, the mug experiment

44 subjects. Half are randomly given mugs, the other half are given nothing. Owners state the price at which they would sell; non-owners state the price at which they would buy. The price is elicited by the Becker–DeGroot–Marschak (BDM) procedure, and the market price is determined by the supply and demand curves.

Neoclassical prediction. Assignment was random, so the two groups' valuations should have the same distribution — and half the mugs, 11, should trade.
Observed. The number of mugs traded was 4, 1, 2 and 2 across the four sessions.
Median seller's value: $5.25
Median buyer's value: $2.75

Willingness to Pay (WTP) < Willingness to Accept (WTA). The gap is roughly a factor of 1.9.

Why it is a violation of rationality? The value of the object changes with ownership. People want to give additional valuation to an object when they own it. The lecture names the mechanism: loss aversion.

→ Why random assignment is what makes the experiment work

If the owners had been the people who liked mugs most, WTA > WTP would be no finding at all — it would just be selection. Randomising who gets a mug equalises the two groups' tastes in expectation, so the only thing that differs between them is ownership. Everything hangs on that.

And why BDM rather than asking for a price: BDM makes truthful revelation weakly dominant. You state your value; if the randomly drawn market price beats it you trade, otherwise you do not. Since misreporting can only make you worse off, the stated number is the real one.

Model 4

The mug market

Twenty-two owners and twenty-two non-owners. At λ = 1 the market clears at exactly the 11 mugs neoclassical theory predicts; raise λ and see where it goes.

Status quo bias and defaults 现状偏差

slides 24–28

Status quo bias: people choose an object which they are initially given. The lecture's statement of why that violates rationality is precise — the choice of {donate, not donate} depends on the initial condition.

2003 Johnson & Goldstein — how to get more organ donations

The question posed: a large educational campaign? The slides' answer is that most public policy choices have a no-action default — a condition imposed when an individual fails to make a decision — and the default does more work than the campaign.

Regime	What it means
Presumed consent opt-out	People are organ donors unless they register not to be
Explicit consent opt-in	Nobody is an organ donor without registering to be one

Study 1 — online experiment. 161 subjects were asked whether they would be donors under three conditions:

Opt-in condition — subjects assume they have just moved to a state where the default is not to be a donor, and are given the choice to confirm or change that status by clicking.
Opt-out condition — the default is to be a donor.
Neutral condition — no prior default.

Study 2 — cross-country difference in Europe. The same variable measured in the field.

! A result the deck does not give

Study 1's design is on the slide in full — the three conditions, the subject count, the mechanism — but its results are not. The numbers are not on the slide and are not quoted here. Study 2's results are on the slide, as the bar chart below, and those are the figures the lab uses.

王敦 at the lavatory 《世说新语 · 纰漏》

王敦初尚主，如厕，见漆箱盛乾枣，本以塞鼻，王谓厕上亦下果，食遂至尽。既还，婢擎金澡盘盛水，琉璃碗盛澡豆，因倒箸水中而饮之，谓是乾饭。群婢莫不掩口而笑之。

Wang Dun, newly married into the imperial family, visits the privy and finds dried dates in a lacquered box — put there to hold under the nose against the smell — and eats them all, taking them for refreshments. Returning, he is offered water in a golden basin and bath-beans in a glass bowl, and tips the beans into the water and drinks it, taking it for a rice dish. The maids cover their mouths.

The slide's gloss: 人们到了一个新的环境，往往还是采用旧的选择习惯，产生差错 — arriving in a new environment, people still apply their old choice habits, and get it wrong. This is the status quo bias viewed from the inside: the default he carried with him was his own past.

Why Three explanations, and the policy consequence

Inertia / omission effect

Doing nothing is not experienced as a choice, so it carries no responsibility.

Suggestion

The default is read as advice — as what the designer thinks you should do.

Loss aversion

Moving off the default means giving something up, and losses weigh more than gains.

The consequence

The lecture's own conclusion: default is one of the most powerful methods to do behavioral nudge.

All three explanations can be true at once, and they carry different welfare implications — a point worth holding on to when you evaluate a default as policy. A default that corrects inertia helps the inattentive; the same default imposes a choice on someone who simply had not got round to registering.

Model 6

Defaults and the status quo

The eleven-country consent chart from the slide, plus a two-parameter model of what a default actually does. Nearly the whole international spread comes out of the model.

Menu dependence

slides 29–32

Asymmetric dominance — the decoy effect

1982 Huber, Payne & Puto — beer

Subjects choose between two types of beer.

Option 1 — $1.80 per six pack, quality rating 50.
Option 2 — $2.60 per six pack, quality rating 70.
Result: 43% chose Option 1, 57% chose Option 2.
A third option is added, strictly dominated by Option 1: $1.80 per six pack, quality rating 40.
Result: 63% now choose Option 1.

Option 3 cannot be chosen by anyone maximising on price and quality — it is worse than Option 1 on both. Yet its presence moves Option 1 from 43% to 63%.

≡ Why this is a violation of IIA, step by step

Set A = {x1, x2, x3} and B = {x1, x2}, with x1 the target.

Property α says: if x1 ∈ B ⊆ A and x1 ∈ C(A), then x1 ∈ C(B). In proportions: the share choosing x1 should be the same in the two situations.

In the experiment the share choosing x1 facing the large set A is higher than the share facing the small set B — 63% against 43%. That is the contradiction. The slide's closing question, and the one to carry away: how to explain this asymmetric dominance effect? Reason-based choice?

The compromise effect

1989 Simonson — calculator batteries

Subjects choose between two types of calculator batteries.

Scenario 1. Option 1 — lifespan 12 hours, 2% probability of corrosion. Option 2 — lifespan 14 hours, 4% probability of corrosion.
Result: 43% chose Option 2.
Scenario 2. A third option is described: Option 3 — 16 hours, 6% probability of corrosion.
Result: 60% chose Option 2.

Option 2's share rises from 43% to 60% purely because a third option was described. The slide's own note: the analysis is similar to the asymmetric dominance effect (please verify it).

What changes is Option 2's position, not its attributes. In Scenario 1 it is an extreme — the longest life and the highest corrosion risk. In Scenario 2 it is the interior point of a three-point range. Model 5 plots both experiments on the same two axes so the difference between the two mechanisms is visible.

Model 5

Decoy and compromise

Two experiments, two mechanisms, one violation. Switch the third option on and off and watch the shares move.

A slip of the tongue 《世说新语 · 排调》

孙子荆年少时欲隐，语王武子“当枕石漱流”，误曰“漱石枕流”。王曰：“流可枕，石可漱乎？”孙曰：“所以枕流，欲洗其耳；所以漱石，欲砺其齿。”

Young Sun Zijing means to say he will “pillow on stones and rinse in the stream”, and misspeaks: he says “rinse on stones and pillow on the stream”. Wang challenges him, and Sun improvises a defence — pillowing on the stream to wash out his ears, rinsing on stones to sharpen his teeth. 请问在这则故事中，王武之的口误是否是理性行为？这类错误是否是系统性偏误？

The answer the framework gives: the slip itself is noise — a single token transposition with no direction, and therefore not a behavioral finding under the three properties of Lecture 1. The rationalisation is the interesting part: the recovery is itself systematic, because people reconstruct a reason for what they have already done far more reliably than they predict what they will do. The slide's closing couplet makes the same point — 「枕流漱石，口误可以辞饰；系统之偏，终非辞之所掩」: a slip can be dressed up in words; a systematic bias cannot be hidden by them.

Summary sheet

printable

Rational preference · Definition 1

≽ on X is rational if complete (for all x,y: x ≽ y or y ≽ x) and transitive (if x ≽ y and y ≽ z then x ≽ z).

Derived relations · Definition 1a

x > y ⟺ x ≽ y but not y ≽ x · x ~ y ⟺ x ≽ y and y ≽ x. The slide's claim: > is irreflexive, transitive and antisymmetric; ~ is reflexive, transitive and symmetric.

Utility function · Definition 2

u: X → R represents ≽ if for all x, y: x ≽ y ⟺ u(x) ≥ u(y). Not unique — v = f(u) for any strictly increasing f represents the same ≽.

Both directions, stated exactly

Proposition 1: representation ⟹ rational. The converse needs an extra condition: if X is finite and ≽ is rational, a representing u exists.

Choice structure · Definition 3

2^B is the family of nonempty subsets of X; C() assigns a nonempty C(B) ⊆ B to every B ∈ 2^B.

The weak axiom

If for some A with x, y ∈ A we have x ∈ C(A), then for any B with x, y ∈ B and y ∈ C(B), we must also have x ∈ C(B).

Sen's Property α / IIA

x ∈ B ⊆ A and x ∈ C(A) ⟹ x ∈ C(B)

Stated on the slide as a necessary condition for WA; equivalent to it when C() is nonempty-valued.

Rationalisation · Definition 4

C(B) = C*(B, ≽) for all B ∈ 2^B

≽ rationalises C() relative to 2^B.

The two propositions that close the first half

Proposition 2: rational ≽ ⟹ the generated choice structure satisfies WA.
Proposition 3: WA + every subset of up to three elements ⟹ a rational ≽ rationalises C(), and it is the only one that does.

Headline numbers

Asian disease: 72 / 28 under the saved frame, 22 / 78 under the died frame. Mug market: 11 predicted trades against 4, 1, 2, 2 observed; median WTA $5.25 against median WTP $2.75. Beer decoy: 43% → 63%. Batteries: 43% → 60%.

Key concepts

English term · 中文

Term	中文	Meaning in this lecture
Preference relation	偏好关系	A binary relation ≽ on X; the model's primitive on the preference-based route.
Completeness	完备性	Every pair is comparable — x ≽ y or y ≽ x or both.
Transitivity	传递性	x ≽ y and y ≽ z implies x ≽ z. The Dutch book is the argument for it.
Utility function	效用函数	A numerical representation of ≽, unique only up to a strictly increasing transformation.
Choice structure	选择结构	The pair (2^B, C()) — budgets and the rule that picks from them.
Weak axiom (WA)	弱公理	Being chosen over y once forbids losing to y anywhere else.
IIA / Sen's Property α	无关备择项独立性	Eliminating unchosen alternatives must not change the choice. Equivalently, no menu effects.
Rationalisation	理性化	A preference relation that generates exactly the observed choice function on every budget.
Mental accounting	心理账户	Money is nonfungible across the accounts it is mentally booked to.
Sunk cost fallacy	沉没成本谬误	Allowing an unrecoverable past outlay to influence the current decision.
Framing effect	框架效应	The choice changes when the options are inconsequentially reworded. Asian disease problem.
Endowment effect	禀赋效应	WTA > WTP for an object randomly assigned. Mechanism: loss aversion.
Status quo bias	现状偏差	Choosing what you were initially given. The basis of the default as a policy tool.
Default	默认选项	The condition imposed when an individual fails to make a decision.
Asymmetric dominance / decoy	不对称占优 · 诱饵效应	A dominated third option raises the share of the option that dominates it.
Compromise effect	折中效应	Adding an extreme option raises the share of whatever becomes the interior point.
BDM procedure	BDM 机制	Becker–DeGroot–Marschak elicitation; makes truthful valuation reporting a dominant strategy.

Self-check

graded, with explanations

0 / 0 correct

The two approaches

Q1The slide asks: if 阮宣子's “将无同” is taken as a preference relation, what is it? Which axiom does it fail?

Correct.Indifference is the positive claim that x ≽ y and y ≽ x. “将无同” asserts neither direction with confidence, so it fails completeness — the requirement that a ranking exist. Option D is true as a statement about relations in general and irrelevant here: Definition 1 is a definition of rational preference, not of relation.

Not quite.Distinguish “does not rank” from “ranks as equal”. Indifference requires both directions of ≽ to hold; a hedge asserts neither. And a relation that fails to rank some pair is still a relation — it just is not a rational one under Definition 1.

Q2Proposition 1 says a representable preference relation must be rational. What about the converse?

Correct.The slide answers the converse in two steps: “No in general”, then a claim — if X is finite and ≽ is rational on X, then a representing u: X → R exists. Keep the asymmetry: representation ⟹ rational, always; rational ⟹ representation, only with an extra condition.

Not quite.Go back to the slide with the converse question on it. The answer is neither “always” nor “never”: it is “no in general”, followed by a claim that adds a condition on X.

Q3State the weak axiom in your own terms. Which of these is it?

Correct.That is the slide's own remark almost verbatim. Option C is a stronger and different condition — it forbids any menu effect at all, whereas WA only constrains the case where the newly added option is chosen. Option B is not required: C(B) is a set, and ties are allowed.

Not quite.C is tempting but too strong: WA constrains what happens when a new option is added and chosen. Adding an option that nobody picks, in a choice function that satisfies WA, is still allowed to change nothing. And B is not part of the definition — C(B) may contain several elements.

Q4Proposition 3 requires that 2^B include all subsets of X of up to three elements. Why is that condition there?

Correct.WA constrains pairs; to recover a relation that ranks every pair you need the pairs to sit inside larger budgets that link them together. Without a richness condition on the domain, WA can be satisfied by choice functions that no ranking generates — which is why the condition is in the statement rather than buried in the proof.

Not quite.It is a domain condition, not a proof convenience. WA on its own is a statement about pairs of alternatives; Proposition 3 needs to weld those pairwise judgements into one ordering over all of X, and for that the domain has to be rich enough.

The departures

Q5In the lost-ticket problem, more people buy a replacement ticket in situation B (lost $40 cash) than in situation A (lost the $40 ticket). What exactly is irrational about that?

Correct.Losing a $40 ticket and losing $40 leave you in the same position. The slide's own explanation is that in A the ticket is felt to cost $80, while in B the lost $40 is “unrelated to the ticket price” — which is the definition of money being nonfungible across accounts.

Not quite.Check the final wealth: you began with enough cash for a ticket plus a ticket's worth of value, and you end without the ticket either way. Nothing about transitivity or time is at stake; what is at stake is which account the loss is charged to.

Q6The Asian disease problem gives 72%/28% under the “saved” frame and 22%/78% under the “died” frame. Why does the lecture call this a violation of rationality rather than a change in circumstances?

Correct.Program A and Program C are the same outcome — 200 of 600 saved is 400 of 600 dead — and B and D are the same lottery. The probabilities are identical; only the description moved. A preference relation is a function of the alternatives, and this one moves when only the description moves.

Not quite.The probabilities and the outcomes are identical across the two frames — that is what makes it a framing effect. Check the mapping: A vs C are the same outcome, B vs D are the same lottery. And note D is simply false: the modal choice flips from risk-averse to risk-seeking.

Q7Kahneman, Knetsch and Thaler randomly gave mugs to half of 44 subjects. Why is the random assignment essential to the result?

Correct.Without randomisation, WTA > WTP would just mean mug-lovers got the mugs. Randomisation removes the selection story, leaving ownership as the only difference. B is a consequence of random assignment plus common valuations, not the reason for it; C is a property of BDM, which works whatever the assignment.

Not quite.Ask what alternative explanation the design is closing off. If owners had self-selected into owning, a WTA–WTP gap would be no finding at all. Randomisation is what makes the comparison informative — and it is what makes the 11-mug prediction meaningful too.

Q8In the beer experiment, the third option ($1.80, rating 40) is strictly dominated by Option 1 ($1.80, rating 50). Yet adding it raised Option 1's share from 43% to 63%. Which axiom does that violate?

Correct.With A = {x1, x2, x3} and B = {x1, x2}, Property α requires the share choosing x1 to be the same in both. Here it is 63% from A against 43% from B. Note the direction — the violation is that the share is higher in the larger set, which is what the attraction effect produces and what a utility maximiser cannot.

Not quite.Option C is the trap. Adding a strictly worse option cannot change a utility maximiser's choice at all, so if anything the share should be unchanged, not raised. The relevant axiom is the one that says eliminating unchosen alternatives must not affect the selection — and here the share moves the wrong way.

Q9Show that Sen's Property α and the weak axiom are equivalent, given that C(B) is nonempty for every budget. State exactly where nonemptiness is used.

Set-up. Write the two conditions as
WA: for all A, B and all x, y ∈ A ∩ B, if x ∈ C(A) and y ∈ C(B) then x ∈ C(B).
α: for all A, B with B ⊆ A and all x ∈ B, if x ∈ C(A) then x ∈ C(B).

α ⟹ WA. Let x ∈ C(A) and y ∈ C(B) with x, y ∈ A ∩ B. Since x ∈ C(A) and x ∈ B ⊆ A, Property α gives x ∈ C(B) directly. No extra assumption is used.

WA ⟹ α. Let x ∈ C(A) with x ∈ B ⊆ A, and suppose for contradiction that x ∉ C(B). Nonemptiness is used here: since C(B) is nonempty we may pick y ∈ C(B), and since x ∉ C(B) this y differs from x. Now x ∈ C(A) with x, y ∈ A, and y ∈ C(B) with x, y ∈ B, so WA forces x ∈ C(B) — contradicting x ∉ C(B). Hence x ∈ C(B).

Where nonemptiness is load-bearing. If C(B) were allowed to be empty the step “pick y ∈ C(B)” would fail, and the implication would break: a choice rule that returns an empty set from some budget can satisfy WA vacuously — there is no y ∈ C(B) to trigger it — while violating α outright. That is why Definition 3 builds C(B) nonempty, and why the deck writes ∅ ∉ 2^B when it defines 2^B.

Why the slide calls α a “necessary condition”. α ⟹ WA is the direction that justifies the label. The slide does not need the converse, but it holds on this domain — which is useful, because it means either condition can be used as the test. Model 3 tests α directly.

Roadmap

What is still to come

From the topic slide of Lecture 1 Weeks 3–16 are placeholders Updated as the decks arrive

Two lectures have been delivered. The course's own topic slide sets out fourteen subjects across three parts, and this page tracks which of them the workbench can currently say anything about. The remaining lectures will be built into this page as they are posted — the same five blocks per lecture, with a model where a model is what the material needs.

Lecture by lecture

the instructor's own sequencing

Lecture 1

Introduction

The two-question experiment
What behavioral economics is, and the three pillars
History of ideas · the four currents
Lab, field, field data, structural estimation

Built · 2 models

Lecture 2

Choice under Certainty

Preference-based and choice-based approaches
The weak axiom and Sen's Property α
Six departures from rational choice

Built · 4 models

Lecture 3 +

Risk

Expected utility and the independence axiom
Prospect theory in full: value and weighting
The Allais paradox, and probability weighting

Waiting for the deck

Lecture 4 +

Time

Exponential versus quasi-hyperbolic discounting
Present bias and commitment devices
Time inconsistency in the field

Waiting for the deck

Lecture 5 +

Beliefs

Heuristics: representativeness, availability, anchoring
The two-systems framework
Overconfidence, and motivated beliefs

Waiting for the deck

Later

Others, Games, Gender, Culture

Social preferences and inequality aversion
Level-k and quantal response equilibrium
Applications: gender, culture, policy design

Waiting for the deck

Adding a lecture. The build is componentised: a lecture lives in one file under _build/parts/, and python build.py reassembles the single-file workbench and its installable shell from scratch. The pipeline, the three verification scripts and the three known traps are documented in _build/README.md.

《世说新语》 index

every story used in the two lectures, and what it illustrates

The stories are not decoration. Each one is placed in the lecture next to the concept it illustrates, and the mapping from story to model is the point — several of them illustrate a concept more memorably than the experiment does. Collected here so the whole device can be seen at once.

Read them the way the lecture does: as illustrations of mechanisms that the experiments establish. A story that can be read as a bias is not evidence of one.

Story	Section of 《世说新语》	Illustrates	Lecture
王戎 and the roadside plums 道边苦李	雅量	Rational inference in a child — and the puzzle of preference change in the same person	L1 §5
王戎 drilling the plum pits 钻核售李	俭啬	The other half of that puzzle: the same man, a different preference ordering	L1 §5
王戎 refusing the condolence money	德行	The counter-evidence: generous in mourning, miserly in trade	L1 §5
The Xinting gathering 新亭对泣	言语	The Nanjing setting of the lectures themselves	L1 §5
阮宣子's “将无同” 三语掾	文学	A failure of completeness — a relation that declines to rank	L2 §2
Zu Shao and Ruan Yaoji 祖士少好财，阮遥集好屐	雅量	The choice-based approach: 「于是胜负始分」 — ranking revealed by behaviour	L2 §4
Wang Ziyou turning back 乘兴而行，兴尽而返	任诞	Sunk cost correctly ignored	L2 §9
朝三暮四	《庄子 · 齐物论》	Framing effect: 「名实未亏而喜怒为用」	L2 §10
Wang Dun at the lavatory 王敦如厕	纰漏	Status quo bias: old habits carried into a new setting	L2 §12
Sun Zijing's slip 漱石枕流	排调	Slips versus biases: noise, and the rationalisation that follows it	L2 §13

The departures at a glance

one table, with the source each one comes from

Departure	Canonical source	Headline result	Model
Isolation effect	Kahneman & Tversky (1979), Econometrica 47(2), Problems 11–12	Two identical problems answered inconsistently by a majority
Prospect theory	Tversky & Kahneman (1992), J. Risk & Uncertainty 5	α = 0.88, λ = 2.25, γ = 0.61 — the median estimates
Menu dependence	Huber, Payne & Puto (1982), JCR; Simonson (1989)	Beer 43% → 63%; batteries 43% → 60%
Endowment effect	Kahneman, Knetsch & Thaler (1990), JPE	Median WTA $5.25 against median WTP $2.75; 4/1/2/2 trades against 11 predicted
Sunk cost	Ho, Png & Reza (2016); Tiefenbeck et al. (2016)	High-sunk-cost cars are driven more, and their usage decays faster with age	—
Status quo bias	Johnson & Goldstein (2003), Science 302	Effective consent ranges from 4.25% to 99.98% across 11 European countries
Framing effect	Tversky & Kahneman (1981), Science 211	72/28 under one description, 22/78 under its equivalent	—
Default effects in the field	Allcott (2011); He, Pan, Park, Sawada & Tan (2023), Science 381	≈2% less household electricity; +648% “no cutlery” orders

? The two on this table with no model

Sunk cost and framing are both, formally, reference-point phenomena — and both are already visible in the two models that do exist. The Asian disease result is the isolation effect of Model 1 with different words; the Singapore car result is a sunk cost behaving like the endowment effect's mirror image. That is why the lecture introduces prospect theory once and then reuses it.

Reading list

as given on the slide

Item	Author	What it is for
《行为新语》讲义	—	The course's own notes. The first thing to read.
Lecture Notes in Microeconomic Theory	Rubinstein	The choice-theory half of Lecture 2, at the same level. The lecture cites Chapters 1–3.
Experimetrics	Peter Moffatt	How to analyse experimental data — the statistics behind “t-test, nonparametric tests”.
Behavioral Game Theory	Colin Camerer	For the strategic half of the course: level-k, QRE, learning.
An Introduction to Behavioral Economics	David R. Just	A textbook, for reference rather than for reading through.
Misbehaving	Richard Thaler	The fullest narrative history of the field.
Thinking, Fast and Slow	Daniel Kahneman	The two-systems framework — the spine of the Beliefs lecture.
《世说新语》	刘义庆著，刘孝标注	A course reading in its own right, not a source of illustrations.

The slide also refers to a paper list. It has not been distributed yet; when it is, it belongs on this page rather than in the lectures.

✎ The one book to actually finish

The slide's own instruction: none of Thinking, Fast and Slow, Misbehaving or The Undoing Project is a textbook, and you should try to finish at least one this semester. They do different jobs: Kahneman for the content, Thaler for how the field happened, Lewis for why the two central collaborators stopped working together.

What you will get from this course

slide 44

Main theories

Prospect theory · quasi-hyperbolic discounting · inequity aversion · the level-k model. Four models, and this workbench now carries two of them interactively.

New skills for an economist

Run lab and field experiments. Think about many things using new perspectives. Think critically about the research literature — replication crisis, causality.

Begin your own research

A research project, which is the reason the methods material in Lecture 1 comes as early as it does.

Assessment

Classroom performance 20% · two problem sets 20% · final exam 60%. The problem sets are the part where the weak axiom and the six departures are most likely to be examined.

! Why the replication crisis is on this slide and not in an appendix

The course teaches experiments as the method, and then tells you to be sceptical of them. That is not a contradiction. An experiment is a procedure for making a claim refutable — and the replication crisis is what happens when the procedure is followed but the claim is still not robust: small samples, many outcomes measured, the analysis chosen after the data. Every experiment on the slides carries its N, and the workbench quotes them, for exactly this reason.

The same standard applies here. Where the slides give a number, the workbench reproduces it with its source; where they do not — the results of Johnson & Goldstein's online study, the treatment definitions behind the classroom double auction — it says so rather than filling the gap.