Behavioral Economics

12 units · 96 lessons · Beginner · Free

Beginner-level tour of behavioral economics: how real human psychology shapes economic decisions, drawn from the work of Kahneman, Tversky, Thaler, Sunstein, Ariely, and others.

What the course covers

1. Unit 1 Foundations of Behavioral Economics

   How behavior, psychology, and the limits of rationality reshape the economics of real human decisions.

   1. What is behavioral economics?
   2. Homo economicus: the rational agent myth
   3. Bounded rationality
   4. From Adam Smith to Kahneman
   5. Why standard economics fails
   6. The behavioral toolbox
   7. Three pioneers: Kahneman, Tversky, Thaler
   8. How to think like a behavioral economist
   Key terms

   • Behavioral Economics
   • Bounded Rationality
   • Default Effect
   • Framing Effect
   • Loss Aversion
   • Mental Accounting
   • Nudge
   • Prospect Theory
   • Richard Thaler
   • Utility

2. Unit 2 System 1 and System 2 Thinking

   Two modes of thought drive every decision — one fast and automatic, the other slow and effortful.

   1. The two systems
   2. System 1: Fast and automatic
   3. System 2: Slow and effortful
   4. The lazy controller
   5. Cognitive ease
   6. When System 1 misleads
   7. Substitution
   8. Training your System 2

3. Unit 3 Heuristics — Mental Shortcuts

   The shortcuts our minds use to make quick decisions — when they work and when they backfire.

   1. What is a heuristic?
   2. Representativeness
   3. Availability
   4. Anchoring and adjustment
   5. The affect heuristic
   6. Recognition heuristic
   7. Fast and frugal heuristics
   8. When heuristics help vs. hurt
   Key terms

   • Availability Heuristic

4. Unit 4 Cognitive Biases

   Systematic deviations from rational thinking that shape every decision we make.

   1. Confirmation bias
   2. Overconfidence
   3. Hindsight bias
   4. Halo effect
   5. Fundamental attribution error
   6. Sunk cost fallacy
   7. Status quo bias
   8. The illusion of validity
   Key terms

   • Confirmation Bias
   • Endowment Effect
   • Hindsight Bias
   • Loss Aversion
   • Overconfidence
   • Planning Fallacy
   • Status Quo Bias

5. Unit 5 Prospect Theory and Loss Aversion

   Kahneman and Tversky's revolution: how people really evaluate risk and reward.

   1. Expected utility vs. prospect theory
   2. Reference dependence
   3. Loss aversion
   4. Diminishing sensitivity
   5. The S-shaped value function
   6. Probability weighting
   7. The fourfold pattern
   8. The endowment effect
   Key terms

   • Endowment Effect
   • Loss Aversion
   • Prospect Theory
   • Status Quo Bias

6. Unit 6 Mental Accounting

   Thaler's insight: money isn't fungible — we sort it into mental buckets that change how we spend.

   1. What is mental accounting?
   2. Buckets and budgets
   3. The house money effect
   4. Hedonic editing
   5. Payment decoupling
   6. Income source and spending
   7. The pain of paying
   8. Mental accounting in practice
   Key terms

   • Mental Accounting

7. Unit 7 Framing Effects

   How the same decision changes dramatically depending on how the choice is presented.

   1. What is framing?
   2. Gain vs. loss framing
   3. The Asian disease problem
   4. Attribute framing
   5. Goal framing
   6. The reflection effect
   7. Framing in marketing
   8. Framing in policy and life
   Key terms

   • Default Effect
   • Framing Effect
   • Loss Aversion
   • Risk Aversion

8. Unit 8 Time and Self-Control

   Why we struggle to do what's good for our future selves — and how to design around it.

   1. Intertemporal choice
   2. Exponential discounting
   3. Hyperbolic discounting
   4. Present bias
   5. Procrastination
   6. The marshmallow test
   7. Commitment devices
   8. Pre-commitment strategies
   Key terms

   • Beta
   • Hyperbolic Discounting
   • Present Bias
   • Time Preference

9. Unit 9 Social Preferences and Fairness

   We are not selfish maximizers — fairness, reciprocity, and trust drive much of economic life.

   1. The fairness instinct
   2. The ultimatum game
   3. The dictator game
   4. Reciprocity
   5. Trust and trust games
   6. Inequality aversion
   7. Public goods and free riding
   8. Social norms
   Key terms

   • Dictator Game
   • Efficiency Wage
   • Gift Exchange
   • Public Good
   • Reciprocity
   • Tragedy of the Commons
   • Ultimatum Game

10. Unit 10 Nudges and Choice Architecture

    Thaler and Sunstein's playbook for steering decisions without restricting freedom.

    1. What is a nudge?
    2. Libertarian paternalism
    3. Default effects
    4. Social proof
    5. Salience and attention
    6. Friction and sludge
    7. Save More Tomorrow
    8. Limits and critiques of nudging
    Key terms

    • Default Effect
    • Libertarian Paternalism
    • Loss Aversion
    • Nudge
    • Present Bias

11. Unit 11 Behavioral Finance

    The behavioral side of markets — why investors aren't rational and what it means for prices.

    1. The efficient market hypothesis
    2. The disposition effect
    3. Herding and bubbles
    4. Overtrading
    5. Home bias
    6. The equity premium puzzle
    7. Calendar and anomaly effects
    8. Robo-advisors and behavioral coaches
    Key terms

    • Efficient Market Hypothesis
    • Loss Aversion
    • Mental Accounting
    • Overconfidence
    • Random Walk (Finance)
    • Risk Aversion

12. Unit 12 Applications and Critique

    Behavioral economics in the real world — public policy, health, business, and the field's open questions.

    1. Behavioral public policy
    2. Health and behavior
    3. Behavioral marketing
    4. Behavior in the workplace
    5. The MINDSPACE and EAST frameworks
    6. The replication crisis
    7. Cultural differences (WEIRD critique)
    8. Becoming a behavioral economist
    Key terms

    • Anchoring
    • Nudge
    • Randomized Controlled Trial
    • Ultimatum Game

Economics glossary →