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Learning Objectives

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


Behavioral Macroeconomics
Robert Waldmann
Office 46a 06-72595741.
Office hours e-mail me for an appointment
Textbook: “Lectures on Behavioral Macroeconomics” Paul De Grauwe

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 Fast 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) historical examples of irrationality described in Charles
Kindlegerger's "Manias, Panics, and Crashes" will be discussed.The additional topic will not
be stressed on the exam which will focus on the main topic of the course (deGrauwe’s

To clarify time devoted to each topic descriptions of lectures follow. For non frequenting
students, notes which summarize the lectures (which in turn summarize the readings) are
available in "materiale didatiche" .
Lecture 1
General introduction. Praise Thinking Fast and Slow, note little has been picked up by
macroeconomists We are really up to where they were in 1974. I will discuss it a little (do
read the whole book when you have time). The basic story about forecasting.
Lecture 2
Kahneman and Tverski 1974 other things about inference and forecasting.
Lecture 3
Choice under risk.
Loss aversion. This is not obvious. It means different choices if offer lottery with large and
small winning or
Lecture 4
More from Thinking fast and Slow – read it. I won’t apply it.
Lecture 5
Consumption (standard)
Lecture 6
Consumption (what I think)
Lecture 7
Investment (housing – why ignored)
Lecture 8
Manias Panics and Crashes.
Lecture 9
A numerical model of irrational asset pricing and data on bitcoin prices
Lecture 10
De Grauwe’s model 1 The 3 equation New Keynesian model
Lecture 12
More on De Grauwe’s model including criticism of De Grauwe and response
Lecture 13
The model with individuals with different beliefs and financial wealth and debt e model
with liquidity constraints. The model with a lower bound on interest rates. Simulations
compared with US data
Lecture 14
Thoughts about DeGrauwe type expectations and investment. Why is this hard to
model. Why did he use a very simple 3 equation New Keynesian model ? An attempt to
model investment with behavioral expectations.


Textbook: “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.