Behavioural Economics: Two Great Opportunities for Economics Education

Economics is changing as an academic subject. Partially in response to mounting student discontent about the narrow and abstract nature of their courses (voiced in the petitions of the early 2000s at Paris, Cambridge and Harvard; the subsequent creation of the Post-Autistic Economics movement, and in the Harvard walkout of 2011) and partially in response to the apparent failure of the discipline to predict the 2008 financial crisis, university departments are now well-advanced in rethinking the content of their degrees. And these changes are filtering down to the economics curriculum for 16-18 year olds. Fundamental to this is the introduction of behavioural economics, which is now being offered as modules at many leading universities, forms part of two of the three main A level economics syllabuses in the UK and is a key component of the Cambridge Pre-U economics course. It is also perhaps the most exciting element of these changes, representing the revival of two themes that promise great rewards in economics education if they are properly seized: one material and the other methodological.

Since the turn of the nineteenth century, when David Ricardo triumphed over his good friend Thomas Malthus in their debate about how political economy should be studied, particularly so in the second half of the twentieth century, it has been almost unquestioned in economics teaching that the subject is to be studied through the formulation and analysis of abstract mathematical models: the Ricardian rationalist approach. In their very first economics lessons, secondary school students are introduced to the notion of the production possibility frontier and, through it, to those of economic capacity and opportunity cost; setting the scene for the almost continuous analysis of increasingly sophisticated, abstract models to follow over the next two to five years. Behavioural economics represents a revival of the Malthusian empiricist approach, being built on observations of behaviour in both laboratory experiments and real life, and so in its introduction comes the opportunity for economics educators to revive with students the debate about how economics is best studied. This is a great opportunity for students to assess whether Keynes was correct when he lamented the subject’s father being Ricardo rather than Malthus.

The introduction of behavioural economics also offers economics educators the opportunity to revive the experimental approach of Vernon Smith: not as a tool of research but as a method of teaching. Smith pioneered the use of small-scale experiments as a way of teaching his students at Purdue University about economics principles in the 1950s, but such interactive teaching is surprisingly absent from classrooms and lecture halls today. With many of its findings coming from easily replicated laboratory experiments (such as those of the decoy, endowment and reflection effects; hyperbolic discounting, and inequity aversion, altruism and reciprocity), behavioural economics opens up the avenue of teaching through experiments like never before: an approach to achieve the unquestionably effective engagement of students in their learning. And if the experimental results fail to align with those of the literature, an approach that further affords students the opportunity to critically assess the discipline.

The changes being made to economics courses at all levels are positive. The advent of behavioural economics as a common component of courses is attracting a greater number, and a wider range, of students to the subject: what I call the Ariely effect because of the effect of Predictably Irrational. The educational opportunities it affords run much deeper than this, though: if only they are fully exploited.

GRAHAM MALLARD is Head of Economics at Cheltenham College. He gained his PhD in economics from the University of Bath in 2011, where he remains a Visiting Research Fellow. He is the author of BEHAVIOURAL ECONOMICS, published by Agenda.