The aim of the course is to provide in-depth knowledge about the birth of behavioral economics and its applications in the business environment. Behavioral economics is a branch of economics which, making use of constructs from experimental psychology, is concerned with formulating more realistic behavior models than those traditionally prevalent in economic theory. During the course the main historical stages that led to the birth and diffusion of this discipline will be discussed. Normative models (Von Nuemann & Morgenstern -EUT- and its extensions -SEUT-), their limits (Allais’s Paradox, Ellsberg’s Paradox) and the most recent descriptive models (Limited Rationality Model by Simon, Prospect Theory by Kahneman & Tversky) will be introduced.
Furthermore, the most recent decision making models (sequential and parallel decision models) developed in the neuroeconomic context will be studied in order to facilitate the understanding of the Bisystemic Theory (System 1 and System 2) and the contribution of first level processes (eg physiological activation) during the elaboration of second level processes (eg decision output).
The influence of temporal and risk factors on the decision-making process will be examined. In particular, the main models of temporal discounting (exponential, hyperbolic, quasi-hyperbolic) and probabilistic discounting will be discussed. Nevertheless, the differences between the concepts of risk, uncertainty and ambiguity will be defined and their relationship with the framing effects (loss aversion) will be deepened.
The concepts of algorithmic reasoning and heuristic reasoning and their respective costs and advantages will also be presented within the course. In particular, biases that play a particularly important role in business dynamics will be examined in greater detail.
Finally, the differences between individual and group decision making process (collective decision making) will be introduced. The causal explanations of group suboptimal decisions, the role of explicit leadership and shared consequences will be explored. Finally, the model DECIDE ((1) D = define the problem, (2) E = establish the criteria, (3) C = consider all the alternatives, (4) I = identify the best alternative, (5) D = develop and implement a plan of action, and (6) E = evaluate and monitor the solution and (7) feedback when necessary).
The entire program will be addressed through the presentation of specific theoretical models as well as of thematic case studies.