What happens when a bunch of psychologists try to investigate the assumptions about human behavior that underlie the discipline of economics? You get Behavioral Economics, a fascinating mix of economics and psychology explored in the new UC Berkeley class Economics 119 Psychology and Economics (iTunes audio, iTunes video, YouTube), taught by Daniel Acland.
Acland is careful to emphasize that Behavioral Economics is not revolutionary; it aims to extend rather than overturn standard economics. But despite this disclaimer, it quickly becomes clear why some economists view Behavioral Economics as subversive. For example, Acland points out that a number of basic economic models assume that people have stable, well ordered preferences. But what if our preferences are easily manipulated? He describes experiments that show that our actual preferences change when we receive an item as a gift (we like it a lot better) or hear an unrelated number (if the number is large we value the item higher than if the number is small). These might seem like laughable human quirks, but in fact they offer a serious challenge to public policy practices like using surveys and cost-benefit analyses to determine public preferences.
The class assumes some basic familiarity with the theories of microeconomics, but Acland does a good job of explaining the theories before he attempts to modify them with the insights of Behavioral Economics. If you want to follow the mathematics and graphs in the models he discusses, it’s a big help to watch the videos rather than just listen to the audio. (Note: the first two lectures are missing in the YouTube and iTunes videos; they are only available in iTunes audio.)