Teachers, you can now register your students for TWO NATIONAL COMPETITIONS this spring—our National Personal Finance Challenge (financial stability/mobility) and our National Economics Challenge (micro/macroeconomics).

Grade 9-12
,
Lesson

How to Use the Behavioral Economics Lessons

Updated: November 15 2016,
Author: William Bosshardt

This note from one of our behavioral economics authors, William Bosshardt, Florida Atlantic University, explains how these behavioral economics lessons are linked together and where they can be used in the high school curriculum.

Time Required

The five lessons in this Topic are:

How the lessons are linked together

These lessons are designed as standalone lessons, but the five are linked by a common theme.  The theme emphasizes the difference between how traditional economists view the world and how people behave in reality. 

People who act according to the rational decision-making predicted by traditional economists are called Econs. People who consider other factors in addition to rational elements are calledHumans. Behavioral economists study how people make decisions that are not predictable by traditional theory.  Each lesson specifically uses the terms Econs and Humans.  The table below describes the differences between Econs and Humans highlighted in each of the lessons. 

Lesson

Econs

Humans

1

Use system 2 (analytical, deliberative) for all their decisions.

Use System 1 (automatic, subjective) to make many routine decisions.

 

Carefully weigh costs and benefits to make decisions

Make decisions on past experience or quick judgments.

2

Are not subject to cognitive biases when making decisions

Are subject to cognitive biases when making decisions and so may use anchors and fall into relativity traps.

3

Make decisions by weighing costs and benefits equally.

Tend to weigh losses greater than gains.

 

Are not influenced by their current situation when making decisions.

Tend to bias to the default or to things they already have.

4

May discount costs and benefits that occur in the future.

May have self-control problems and discount the future too much or be subject to present bias, causing inconsistent decisions.

5

Only use costs and benefits to make decisions.

May make decisions based on fairness or for other emotional factors such as whether work is meaningful.

Each lesson also includes active learning components such as experiments, simulations, group work, and case studies.  

Where to use the lessons in a high school curriculum

1.            A module within an economics course.  The lessons certainly could be done as a unit in behavioral economics in a high school economics course.   While the time required would be at least a week, doing the entire module will give the students a fairly comprehensive understanding of behavioral economics principles.  Lesson 1:  Introduction to Behavioral Economics provides background information on behavioral economics ideas and emphasizes the importance of experiments in behavioral economics.

2.            Lessons used to bolster concepts within a traditional economics course.   Many of the lessons can be used individually to provide further insights into traditional economics courses. 

·         Lesson 2:  Anchoring effects.  This lesson uses the market simulation as its basis, so it could be done in conjunction with the market game when teaching supply and demand. This lesson could also be done at the end of supply and demand chapters to provide additional insight into the thought process of consumers and their willingness to pay.  The lesson illustrates how we can be influenced by many factors when it comes to what we are willing to pay for a good.

·         Lesson 3:  Loss Aversion, Endowment Effects, and Default Bias.  This lesson could be used with decision-making at the beginning of an economics course.  It shows that sometimes people do not do a good job of just weighing the costs and benefits of a decision.  This lesson also ties in well with the concepts on consumer behavior, utility and the consumer. 

·         Lesson 4:  Why Are We So Impatient?  This lesson could be used in the discussion of interest rates in AP macro courses.  The supply of loanable funds depends on people’s willingness to save now in order to consume later.  Lesson 4 includes graphing how impatient people are, and introduces the idea of discounting future benefits and costs.  At a trial workshop, a teacher looked at her graph and commented “well, I guess this explains my savings account balance.”  For regular economics courses, the idea of interest rates as the reward for waiting to consume can be presented using portions of this lesson.

·         Lesson 5:  Other Things Matter.  This lesson talks about fairness and how people value things other than pure efficiency in their daily lives.  It could be used to enhance student’s perception of fairness in the market, such as “Is it fair that a hardware store raises prices on snow shovels after a blizzard?”  This lesson also focuses on why people work, so the lesson could be done in the labor market section of an economics course.

3.            Lessons used to bolster concepts within a financial literacy course.  Many of the lessons can be used to provide further insights into financial literacy courses. 

·         Lesson 2:  Anchoring effects.  This lesson illustrates how we can be influenced by many factors when it comes to what we are willing to pay for a good.  It focuses on how retailers try to influence the price we are willing to pay with anchors.  The lesson would fit well in the buying goods and services section of a financial literacy course.

·         Lesson 3:  Loss Aversion, Endowment Effects, and Default Bias.  This lesson includes a section on how to get people to save.  The section highlights the importance of setting defaults so that people can be nudged into “better” savings behavior.   This lesson would fit well in the savings section of a financial literacy course.  It also provides students with  insight into why people strongly prefer avoiding losses and why the pain from losses is greater than the pleasure from gains.  This knowledge is important in decision-making, especially when making investment choices.

·         Lesson 4:  Why Are We So Impatient?  This lesson includes graphing how impatient people are, and introduces the idea of discounting future benefits and costs.  It can be used to talk about why people have a hard time saving. 

·         Lesson 5:  Other Things Matter.  This lesson includes a section about why people work, so it could be used in the earning income section of a personal finance course.  It introduces the notion that people work for more than just the income provided by the job.

4.            Lessons used to bolster concepts within a psychology course.

·         Lesson 2:  Anchoring effects.  This lesson can be used when teaching reasoning and decision- making, particularly with the anchoring heuristic.

·         Lesson 3:  Loss Aversion, Endowment Effects, and Default Bias.  The idea of framing can be taught when talking about reasoning and decision-making.

Will Be Able To

See individual lessons for learning objectives.

Materials

Process

Please refer to individual lessons.

Conclusion

Not applicable.

Extension Activity

Not applicable.

Assessment

Not applicable.

Subjects:
Economics