ECON 353(S) Decision Theory (Q)

Studies of decision-making suggest that most people substantially violate even undemanding models of rationality. Are people truly irrational, and, if so, can anything be done about it? This course focuses on normative decision-making (how we should make decisions under general conditions), descriptive decision-making (how we do make decisions under actual conditions), and the contrast between the two. We proceed to a view of prescriptive decision-making, or how we might combine normative and descriptive insights to improve decision-making and judgment. Topics include decision-analytic methods for improving decision-making rigor (e.g., decision trees); microeconomic concepts and tools for optimization problems; game theory as appropriate; insights from cognitive psychology on heuristics (short cuts) that sometimes help, but often distort, decision-making; integrated models of judgment that call for both analysis and intuition; insights from the newly-emerging studies of judgment and wisdom. Until a few years ago, this topic was given normative treatment in departments of engineering, statistics and economics, and was separately taught as a descriptive science in departments of psychology. The apparent value of combining the two into a single, prescriptive analysis of decision-making and judgment has led to a recent wave of interdisciplinary approaches such as the one adopted in this course. Requirements: multiple problems and case analyses, one project, final exam. Prerequisites: Economics 101 and 251. Mathematics 140 or equivalent recommended, but not essential. Enrollment limit: 25 (expected: 25).