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Learning Objectives

Knowledge and understanding

Students should be familiar with the beharioral macroeconomic models listed in the syllabus. They should understand the empirical motivation for the psychological assumptions made by the theorists and have a qualitative intuitive grasp as to why these assumptions imply different dynamics that occur with otherwise indentical models under the assumption of Nash equilibrium.

Applyingknowledge and understanding.

Students should be able to explain how policy advice based on the behavioral models differs from that based on otherwise identical models under the assumption of Nash equilibrium. They should be able to guess how a change in an assumption implies a change in the implications. They should understand how the psychological assumptions can have implications different from Nash equilibrium in real life situations (which implies an ability to guess implications of behavioral micro)


Students must decide if they think that the bevavioral approach has anything useful to add to standard theory. For obvious reasons related to a conflict of interest, they will not be required to communicate that decision to the professor and the decision (woth something or worthless) should have no effect on evaluation of the student by the docente (while of course it must have a fundamental effect on the student's evaluation of the course).

•Communication skills

Students should be able to discuss the models, assumptions and implications in English comprehensible to non experts. They should also develop an ability to illustrate these points with graphs and simulations (minimal MatLab literacy will be developed also for students who lack it at the start of the course).

• Learning skills

Since behavioral models use rules of thumb, numerical simulation is both even more necessary and much more simple and intuitive than it is with rational expectations/Nash equilibrium models. This means that undergraduate students will be able to benefit from modifying programs (including just changing parameters). The course is, possibly, a good way to find out how helpful (and potentially fun) numerical methods are for those asking questions about economics (not just macroeconomics).

In general the aim is to enable students to decide if they consider the behavioral approach to macroeconomics useful and to be able to apply it to practical policy relevant issues if they think it is useful. Following the course, students should be able to criticize and note the weakness of the approaches presented, and also to explain how they can be applied.


any undergraduate Macroecomics course


The aim of the course is to provide a hint of the potential usefulness of behavioral models, in which
agents are assumed to be irrational. The course will start with a review of the classic “Thinking Fas and Thinking Slow” by Daniel Kahneman.
The main focus will be on one kind of irrationality and discuss
implications in the context of the simplest available macroeconomics models. This (main) section is based largely on the work of Paul De Grauwe.

In addition (and briefly) Gabaix’s explanation of apparent myopia based on limited attention and finite processing capacity will be discussed.
Also the application of Kahnemen and Twersky to economics by Genaiolo and Shleifer will be discussed.
Finally examples of apparent bubbles described by Robert Shiller will be discussed.

The three additional topics will not be stressed on the exam which will focus on the main topic of the course (deGrauwe’s approach).


Lectures on Behavioral Macroeconomics” Paul De Grauwe



Thinking, Fast and Slow
10 May 2012
English edition by Daniel Kahneman

Lectures on Behavioral Macroeconomics Condividi
di Paul De Grauwe
Princeton University Press, 2012


A Crisis of Beliefs: Investor Psychology and Financial Fragility
Nicola Gennaioli & Andrei Shleifer
11 settembre 2018

Irrational Exuberance: Revised and Expanded Third Edition Paperback –
Robert J. Shiller
August 16, 2016

Teaching methods

I will lecture and also perform numerical simulations. Students are invited to ask questions, make comments and propose applications of the models which will be considered. I hope everyone will speak some (but class participation is not graded)

Exam Rules

The course will be graded based on a written exam in which you will be asked to write 2 very brief essays.

For each essay the students will be presented with an extremely simple version of a model discussed in class. They will be asked to note key assumptions and describe alternative possible assumptions. They will be asked to explain if the behavior of the model depends on critical assumptions made for convenience.