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Human Decision-Making: Rational and Irrational
Seminar Leader: Kate Krause
Department of Economics
1006B SSCI
University of New Mexico
Albuquerque, NM 87131

Economists start with the assumption that we tend to make decisions that leave us as well off as possible, given that our time, financial resources and energy are in limited supply. We shop around to find the best bargains; we pursue careers that offer satisfaction. However, we also make a lot of decisions that seem directly opposed to our own best interests. We over-indulge, we take unreasonable risks and we procrastinate. How can we refine our views of human nature to reconcile these competing tendencies? Many of our decisions are influenced by information and advice obtained from friends, the media and elsewhere. Some of this information is helpful, but some of it may be misleading. How can we judge the credibility of information?

The tools that economists use can help anyone make better choices and understand the choices made by others. The curriculum units that follow consider the process of decision-making, observing and describing how people actually make decisions and process information. They also describe ways students can be taught to make better decisions. The units present tools used by professional decision-makers, including decision trees and strategy matrices. They develop the logic of strategic thinking and alert us to common pitfalls in assessing, and acting on, information.

The content areas covered in the units range from traditional economics, as in Stanley Yukon’s Smart Money Decisions to drama and theater in Debi Kierst’s The Actor Process: Using Effective Decision-Making to Develop Characters. Martha Bedeaux finds decision-making examples in fiction and poetry in her unit, A Short Story of Decision-Making. Specific domains that require students to apply decision-making skills are covered in Sara Cook’s Economic Theory and Media Literacy and in Phyllis Sandoval’s Costs and Benefits of Life-style Choices.

Effective decision-making skills are important for students of all abilities. Jana Burdick’s Combining Literature and Economic Theory as a Tool for Teaching Behaviorally and Emotionally Disturbed Students Better Decision Making Skills, Erica Pacheco’s How Do Choices Affect our Everyday Life? and Jody Lunz’s The Economics of Decision Making specifically address the special needs of students with learning disabilities. In their units, Bill Shiver (Self Exploration and Decision Making) and Judy Mast (Human Decision-Making: Rationale of Our Reasoning) address the needs of gifted students.

Economics is not just an academic discipline. It is a life skill. We all make choices when we allocate our time, our money, or our energy, and we are all susceptible to errors of judgement when we make those choices. The tools presented in these units probably will not prevent us, or our students, from making bad decisions, but they will help us to appreciate why some of those decisions were made.

Readings and Other Materials

Four books and several articles from professional journals and the popular press will guide our inquiry into decision-making. The first readings will be from, A Guide to Everyday Economic Thinking, supplemented by readings from The Economics of Public Issues. This material presents the structured model that comprises standard economic beliefs about behavior. The second and third books, Thinking Strategically and Passions within Reason: The Strategic Role of the Emotions, provide ways of thinking about strategic interactions among people. I will also distribute a packet of articles.

Seminar Structure

We will meet twelve times. In the first ten sessions we will discuss readings and observations and conduct experiments related to the seminar topics. During the last two sessions, fellows will present the curriculum units they have designed. Observation and hands-on experimentation are essential parts of this seminar, as they will provide the data we use to think about how people behave. Some of the time we will consider our own and other people's real world behavior, and some of the time we will conduct experiments on each other that are designed to isolate specific aspects of behavior. By the end of this seminar you will have participated in about ten economics experiments. These experiments will give you insight into how theories really play out and give you ideas for interactive teaching of decision skills.

Ten Topics and Associated Readings

1. Consumer Theory: Here I am at the mall, now what do I buy?
    Lady Macbeth; Chapters 1 - 3 of A Guide to Everyday Economic Thinking

2. Producer Theory: Here you are at the mall, now what do I sell?
    Chapters 4 - 7 of A Guide to Everyday ....
    Part 1, Chapter I and Part 11, all chapters of The Economics of Public Issues
    Coffee Prices, Organ Donations and Austin Powers

3. Assessing Risk: If crime statistics are declining, why am I so worried?
    Part 1, Chapters 2 and 3 of The Economics of Public Issues
    Sir Thomas Bayes, The Psychology of Preferences, Juvenile Violence

 4. Time Inconsistency Problems: Maybe it really will be easier to quit smoking, go on a diet, start exercising, finish that paper...... tomorrow.
     Akerlof, Procrastination and Obedience
     Bounded rationality: It's rational to stop thinking before your brain hurts.
     Conlisk, Why Bounded Rationality?

5. Group Influences: Whose idea was this anyway?
   Akerlof, Procrastination and Obedience, Robert Frost
    Signaling: The true value of having a red sports car.
   Passions within Reason

6. Matrix games: The Prisoner's Dilemma and Coordination Games
    O. Henry, The Gift of the Magi
   Parts I and II of Thinking Strategically

7. Bargaining games: Ultimatums and centipedes; kindness and revenge
    Part III of Thinking Strategically
    Military Urges U.S., Ultimatums, Dictators and Manners

8. Commitment Devices: Who can you trust?
   Passions within Reason, Chapter 6 of Thinking Strategically
    Games Primates Play

9. Public Policy applications (Poverty, inequality, environment): If I ruled the world…
    Chapters 10, 11 and 12, A Guide to Everyday Economic Thinking
   Parts 4 and 6 and Chapter 22 of Part 5 of The Economics of Public Issues
    Tragedy of the Commons

10. The big picture, and some decisions that can't be categorized.

Decision-Making Seminar Reading List

Reading Packet material:
        Lady Macbeth
        Coffee Prices, Organ Donations and Austin Powers
        Juvenile Violence, Sir Thomas Bayes, The Psychology of Preferences
      Akerlof, Procrastination and Obedience
      Conlisk, Why Bounded Rationality?
      Robert Frost, The Road Not Taken
      O. Henry, The Gift of the Magi
        Military Urges U.S., Ultimatums, Dictators and Manners
        Games Primates Play
        Tragedy of the Commons

Books:
        Dixit, Avinash K. and Barry J. Nalebuff. Thinking Strategically. Norton: 1991.
        Frank, Robert H. Passions within Reason: The Strategic Role of Emotions. Norton: 1988.
        Giesbrecht, Martin G. and Gary Clayton. A Guide to Everyday Economic Thinking. Irwin Mc-Graw-Hill: 1997.
        Miller, Roger LeRoy, Daniel K. Benjamin, and Douglass C. North. The Economics of Public Issues. Addison-Wesley: 1999.