6454: Behavioural Consumer Theory

The course focuses on consumer theory, revealed preferences, and welfare measurement in standard economics and behavioural economics. We begin by covering classic consumer theory introducing assumptions required for preferences to be rational and then derive the classical preference-based consumer demand function. The aim is to understand (i) how classical preference-based demand theory allows for normative welfare analysis and (ii) what assumptions are required in order for consumer choices to reveal information about underlying preferences (i.e. the strong axiom of revealed preferences). From this classical view on consumer demand, the second part of the course then broadens to cover recent research in economics, which suggests that consumers are not fully rational, and we discuss the implications for revealed preferences and welfare analysis as well as the potential role of completion, regulation, and nudging. We cover these topics in the specific setting, where consumers have limited attention implying that they do not fully consider all available information when making choices. Finally, the second part of the course touches on how to test economic theory and do a welfare analysis in practice using field data. For this purpose, we introduce structural behavioural economics: a recent approach to combining theory and field data. We use two recent papers on limited attention as applications that use structural behavioural economics to test theory and analyse welfare effects.

COURSE SUBJECT AREAS:

1. Classic Consumer Theory (MWG chapters 1-3)
2. Limited attention and revealed preferences (Gabaix (2014))
3. Revealed preferences and welfare measurement in behavioral economics (Bernheim & Rangel (2008), chapter 7 in Caplin and Schotter, Közegi & Rabin (2008), chapter 8 in Caplin and Schotter)
4. A revealed preference foundation of nudging (Benket & Netzer (2018))
5. Structural behavioural economics: Testing theory in the field and measuring welfare (DellaVigna (2018), Damgaard & Gravert (2018), Allcott & Taubinsky (2015))

Feedback

The following types of feedback are used in this course:

• Facilitated and non-facilitated peer feedback
• Oral activities in class
• Self-assessment

Evaluation

All Bachelor's and Master's degree courses are part of the joint digital course evaluation at Aarhus BSS. End-of-course evaluations are usually opened the week before the last lecture. 10-15 minutes of the lecture is reserved for the students to complete the questionnaire.

Upon completion of the course, the student should be able to apply advanced tools from microeconomic theory to analyse a broad range of research questions in economics.

Having completed the course, the student should be able to demonstrate:

Knowledge

• of the underlying assumptions in standard consumer theory including, the difference between the preference and the choice-based approach and the assumptions underlying standard welfare analysis.
• of why the assumptions of the standard model may fail in behavioural (inattention) models and what this implies for revealed preference arguments and welfare analysis.
• of the revealed preference foundation of nudging including what information is required to design good nudges.

Skills

• to analyse individual decision making using tools from constrained maximization, duality theory and revealed preferences.
• to apply revealed preference arguments and conduct welfare analysis in standard and behavioural settings.
• to reflect upon and analyse individual decision making when consumers pay limited attention.

Competences

• to reflect upon the foundations of positive and normative economics in standard and behavioural economics.
• to reflect on how theoretical models may be tested and how welfare can be assessed in the field.
• to reflect on the theoretical properties of these models and evaluate the underlying assumptions.
• to generalize some of the simplifying assumptions made in practical applications.