Behavioral and Experimental Economics (428/528)

Professor Bill Harbaugh, University of Oregon Economics, Spring 2009. 12:00 - 1:50, 128 Chiles. 538 PLC, 346-1244 Office hours: 2-4 Monday, or by appointment, or if my door is open.

the online version of this syllabus (with links to readings) is at

course notes (for some lectures only) and homework assignments are at

About this Syllabus:

The syllabus explains what the course is about, explains the $80 lab fee, explains grading, and provides links to the readings. I will assume you have read it carefully.


This class is unusual. We will do many experiments in class, most with cash payoffs. The cash comes from a $80 lab fee. Because I contribute money as well, on average you can expect to get back more than you pay – but some people may get nothing back. If you have questions about this, please let me know. You don’t have to buy a book – I will put all the readings online for you, and the links are below. Topics may be changed and readings added as we go along. Check back frequently.

This course is a mix of behavioral economics, experimental economics, and neuroeconomics. I’ll start by describing behavioral economics. By this point in your academic career you know that economics is the study of how people make choices in a world with constraints. Many of the economics courses you have taken probably emphasized how economists believe people should behave in such a setting. For example, you learn things like how to use indifference curves to find the allocation that maximizes utility, why we should ignore sunk costs, why we shouldn't cooperate in prisoner's dilemmas, and so on. Many of these "normative" statements about what people should do are based on some very specific assumptions about behavior, most notably that people make choices with the goal of maximizing their own utility.

Behavioral economics is different, in that is studies how people actually behave in economic settings, not how we think they should behave. A lot of the insights of behavioral economics originate with psychological models of behavior. Behavioral economists are particularly interested in situations where what people actually do differs from what the rational choice model says they should do. This is mostly because behavioral economists believe that by studying these anomalies we will ultimately be able to build better models of economic behavior. Or the just enjoy attacking the established wisdom.

For example, behavioral economists have developed “hyperbolic discounting” models of choice over time. They argue that these models are better at describing actual behavior in areas such as retirement savings accumulation and addiction than the standard constant discount rate models are. Another example would be fairness. People seem to want to be nice to people who are nice to them, and mean to people who are mean. Behavioral models that incorporate these preferences lead to some interesting predictions about behavior and equilibria. They also have important implications for how we should think about subjects that are analyzed in traditional economics courses, such as wages and unemployment.

Experimental economics is a methodology. Instead of testing theories using the sort of happenstance data that most empirical economists use, experimentalists get their data from experiments under controlled conditions. We use cash payoff so that people’s decisions have real consequences, just like decisions outside the lab do. I like to say that experimental economists are producers of data, not just consumers of it.

Note that experimental economics is not the same as behavioral economics. Many experimentalists are not that interested in overturning the theoretical foundations of rational choice theory. Instead, they may find that the theory doesn't make specific predictions about the situation they are trying to deal with, and they are trying to figure out which equibrium is most likely to happen. Some economists use experiments to predict how people will behave in radio spectrum auctions, for example. Economists should have used experiments to study the electricity auction mechanism before it was set up in California, for another. Other experimental economists believe that the anomalies behavioral economists claim to have identified are not general enough to bother with, perhaps because they believe they tend to go away with learning, or in situations where the stakes are higher.

Neuroeconomics is the application of new methods from neuroscience to economic questions. The goal of neuroeconomics is to understand how the brain makes economic decisions. Neuroeconomists believe this will lead to more accurate economic models and to better predictions about behavior. Most of my current research is in neuroeconomics, so we will spend several weeks on this, starting with basics from neuroscience.

This course is designed to give you a background in behavioral, experimental, and neuroeconomics. It's a hands on course - we do experiments in class with cash payoffs. While this course is mainly about what experiments reveal about economic behavior, you will also learn something about the design and analysis of economic experiments.

The Economic Incentive Scheme:

Economics is about actual, not hypothetical behavior and for this reason economic experiments involve real, not hypothetical consequences. Economists make sure people make careful decisions in experiments by making sure they have incentives to do so. In this class we will do this with the usual incentive - money. You will earn cash amounts that depend on your decisions and the decisions of others. The money comes from you. There is no textbook for this class – all readings are available on the internet, or through handouts I will give you. Instead, there is an $80 lab fee, payable via cash, or by a check made out to me, or by paypal sent to my account, The payment is due Wednesday of the second week of class. This lab fee will be used to provide the payments for the experiments that we will do.

I will deposit this money into a savings account, adding (at least) $200 of my own funds to “sweeten the pot.” I will keep a running balance of your earnings in the experiments. I will pay you your earnings out of this account on or before the final exam. Any amount of the account balance that is not paid out in the experiments will be divided up among students evenly. If you drop the course, I will prorate and refund your lab fee based on the proportion of class meetings that you were officially enrolled for. Depending on your decisions, and the decisions of others in the experiments, it will be possible for you to earn substantially more than the $80 lab fee in these experiments. Of course, it is also possible for you to earn nothing – particularly if you miss some classes. I will give you a receipt for your payment and a copy of these rules on Wed of the second week of class. Contact me before then if you have questions.


There will be 5 homework assignments and a comprehensive final. The homework counts for half your grade, the final for the other half. Homework will be assigned about a week before it's due. The point of homework is to give you incentives to learn the material and some feedback about your level of understanding as we cover new material. Given this, it can be a very good thing to do homework in a group. You can learn a lot from explaining things to other people, and from hearing other perspectives on a problem, challenging them, and having your own answers challenged. I still learn this way, from the questions I get asked while teaching. However, if you are just relying on someone else to figure out the problems, and then copying out their answers, you are not engaging in this give and take process, and you're probably not learning much. I am not particularly worried about this copying from the point of view of evaluating your knowledge. This will show up on the exam. However, I do want to make sure that the homework serves the purpose of helping you learn the material. When I receive copies of the homework from different people but with identical answers, I worry that people are relying too much on others and not working through the problems themselves. Therefore, if you work in groups, once you have worked out an answer stop working together on the problem. Write your interpretation of the answer down on your homework. At that point, don't compare answers anymore. This will make sure that the answer is your own.

The final is 10:15 Monday of finals Week.

Early or late exams will only be given with a note from your anesthesiologist, or the arresting officer.

Masters Degree Students:

If you are enrolled in the 528 version of this class you will need to write a 15 page research paper to get credit for this class. You are responsible for meeting with me within the first two weeks of class to go over the requirements for this paper. This paper will count for 30% of your grade, and the weight on homework and tests will be reduced accordingly.

Course Content:

This course is built around the subjects listed below. We will spend about 2 lectures on each. Check the online syllabus frequently, for updates!

Professors usually want you to do the readings before class to avoid blank stares from their students. Students usually prefer to wait until after class, when they know which parts to skip. I’d prefer that you wait, so your decisions in the experiments won’t be influenced by what you read. But you might prefer to read ahead – maybe it will help you earn more money! These papers range from easy to very, very difficult. If you find parts tough going, you are not alone. Do your best and I will give more explanation in class. All of the articles are available on-line. You should be able to link to these directly, so long as you are on campus. If you are off campus, you may need a VPN.

  1. Introduction (week1)
    1. Classroom Games: Trading in a Pit Market Charles A. Holt The Journal of Economic Perspectives, Vol. 10, No. 1. (Winter, 1996), pp. 193-203.
  2. Introduction to Neuroscience (week 2)
    1. Motivation: Neural Responses to Taxation and Voluntary Giving Reveal Motives for Charitable Donations. William Harbaugh, Ulrich Mayr, Dan Burghart. Science. June 15, 2007.
    2. Basics: Neurons, functional neuroanatomy, single unit recording
    3. Dopaminergic system
    4. fMRI, TMS
  3. Rational choice and framing effects (week 3)
    1. GARP for Kids: On the Development of Rational Choice Behavior William T. Harbaugh; Kate Krause; Timothy R. Berry The American Economic Review, Vol. 91, No. 5. (Dec., 2001), pp. 1539-1545. (Note: the theory is tough going, concentrate on understanding Figure1.)
    2. Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias Daniel Kahneman; Jack L. Knetsch; Richard H. Thaler. The Journal of Economic Perspectives, Vol. 5, No. 1. (Winter, 1991), pp. 193-206.
    3. Knutson shopping experiment.
  4. Bargaining and altruism (week 4)
    1. Bargaining Anomalies: Ultimatums, Dictators and Manners Colin Camerer; Richard H. Thaler The Journal of Economic Perspectives, Vol. 9, No. 2. (Spring, 1995), pp. 209-219.
    2. The Neural Basis of Economic Decision-Making in the Ultimatum Game. Alan G. Sanfey, et al. Science 2003.
    3. Does Culture Matter in Economic Behavior? Ultimatum Game Bargaining among the Machiguenga of the Peruvian Amazon Joseph Henrich. The American Economic Review, Vol. 90, No. 4. (Sep., 2000), pp. 973-979.
    4. Childrens Bargaining Behavior: Differences by Age, Gender, and Height” William T. Harbaugh, Kate Krause, and Steve Liday
    5. "Which is the Fair Sex? Gender Differences in Altruism," Jim Andreoni and Lise Vesterlund. Quarterly Journal of Economics, 2001. [Download]
  5. Choice over time (week 5)
    1. Intertemporal Choice: Palgrave Encyclopedia article, David Laibson.
    2. Delay of Gratification in Children Walter Mischel; Yuichi Shoda; Monica L. Rodriguez Science, New Series, Vol. 244, No. 4907. (May 26, 1989), pp. 933-938
    3. The standard economic model of discounting. Online examples.
    4. The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation (in Symposium: Consumption Behavior) George-Marios Angeletos; David Laibson; Andrea Repetto; Jeremy Tobacman; Stephen Weinberg The Journal of Economic Perspectives, Vol. 15, No. 3. (Summer, 2001), pp. 47-68
    5. Separate Neural Systems Value Immediate and Delayed Monetary Rewards. Samuel M. McClure, et al. Science 306, 503 (2004);
  6. Trust, reciprocity, altruistic punishment (week 7)
    1. Trust and GDP growth (Knack and Keefer)
    2. Trust and Oxytocin (Zak)
  7. Failures (week 8/9)
    1. Beauty Contests or Guessing Games. Rosemarie Nagel.
    2. Information cascades: Information Cascades in the Laboratory. Lisa R. Anderson, Charles A. Holt. The American Economic Review, Vol. 87, No. 5. (Dec., 1997), pp. 847-862. [Download].
    3. Do people play Nash? Sub-game-perfect Nash? Goeree and Holt, “Ten little treasures of game theory and ten intuitive contradictions” AER, December 2001. Holt ten treasures.pdf
  8. Choice under uncertainty (week 8/9)
    1. Risk Aversion and Incentive Effects. Charles A. Holt; Susan K. Laury The American Economic Review, Vol. 92, No. 5. (Dec., 2002),
    2. Uncertainty, gain and loss aversion. An interactive introduction:
    3. Choice Under Uncertainty: Problems Solved and Unsolved Mark J. Machina The Journal of Economic Perspectives, Vol. 1, No. 1. (Summer, 1987), pp. 121-154. (Note: read the first part, you are not responsible for the triangle diagrams.)
  9. Competition (week 10)
    1. Overconfidence and Competition Muriel Niederle and Lise Vesterlund
    2. Affirmative Action
  10. Catch up (week 10)