1Applications of Psychology and Economics – Econ 219B Spring 2004 Wednesday 12-3, 639 Evans Hall Instructor: Stefano DellaVigna, 515 Evans Hall [email protected]. Office Hours: Tu 5-6 Syllabus Features of this course This course is the continuation of the 219A class in Psychology and Economics – Theory, taught by Botond Koszegi. As in 219A, we will keep emphasizing the psychological evidence as the basis for sound economic analysis. This should surprise nobody, given the name by which the course (and the field) goes. We will also insist on the importance of neoclassical theory as a very successful benchmark that you are required to know. Finally, several topics of this course are designed to be the empirical counterpart of the theory covered in 219A. This is in particular true for the sections on Self Control, Reference Dependent Preferences, and Social Preferences. There are two main differences between 219A and 219B. First, this class has largely an empirical orientation, as opposed to the theoretical orientation of 219B. The emphasis on data just reflects the empirical status of economics. In particular, the success of the Psychology and Economics approach will depend on the empirical explanatory power of its theories. Can this approach explain evidence that the neoclassical model struggles with? Can it do so using parsimonious models? In 219B I will present empirical papers drawn from a variety of fields to try to address these questions. We will touch on consumption, public economics, labor economics, industrial organization, political economy, asset pricing, and corporate finance. The second main feature of the course will be its emphasis on dissertation writing. This will be apparent in the exposition of the topics. More often than not, we will note that the available empirical evidence barely scratches the surface. While this is a drawback for the field, it is a great opportunity for students planning to work in the area. In very few other fields there are so many important questions that still go unanswered. Throughout the course I will do my best to point out what seem to me like good directions for empirical research. In addition, as an incentive to get you started, one of the requirements of the course is a paper on an applied topic. More on this below.2Rules of the game As a general rule, you should have taken the 219A course before you take this course. If you have not, but are interested in taking this course, please come and talk to me. The prerequisites of the 219A course, that is, an understanding of the economics of uncertainty, contract theory, and game theory at the level of 201B, apply to this course as well. In addition, it is important that you have had exposure to econometrics and empirical research. You should be familiar with OLS estimation, panel data models, and discrete choice models. For example, you should have no uncertainty as to what fixed effects do in a regression. Although it is not a requirement for this course, I recommend taking at least one labor economics course to anyone contemplating doing empirical research. Throughout the course, I will assign a few required readings each week. The required readings are starred in the reading list below. The non-starred readings are optional, but I suggest that you at least read the abstract. So much of a paper is in the abstract (if the abstract is well-written). There are four requirements for the course: weekly assignments, an empirical problem set, a presentation, and a paper. The assignments are as follows. Every week I will assign a conference-style discussion of one of the required readings. The discussion is only due on eight of the thirteen weeks of the course, at your choice. In the discussion you should focus your attention on the content, the empirical strategy, or possible extensions of the paper. You do not need to summarize the paper. Given the high frequency of the assignment, the format requirements will be minimal. The discussion should be one- to two-pages long, and can be in a bullet format. The discussion is due to me by noon on Tuesday before lecture. This allows me to read them before class and try to integrate your comments in the lecture. You can either slide the discussion under my door or email it to me. The other assignment is a one-time empirical problem set. This year, the problem set will focus on earning announcements and the response of stock prices to the new information contained in the announcements. We may also have, in alternative, another empirical problem set on the effect of the media. You can work on the assignment in groups of up to three people, but each one should hand in a solution. I will distribute the problem set at the beginning of March. The data will be in Stata format. I will assume that you have a working knowledge of Stata. The second requirement is a 25-minute class presentation of the weekly reading. The presentation should have three parts: a. summary of the content of the paper; b. criticism of the paper; c. suggestions for new research. I will elicit your preferences on the topic for the presentation. These short presentations are a good practice for many to come in your academic career. The third requirement for the course is an empirical paper. As a student, I hated courses that required a paper, but was very happy ex post that I had been forced to write one. As an attempt to make this commitment device more palatable, here are two technological innovations: - The paper can be written in groups of up to 3 students. - I encourage you to come up with your own topic for the paper. However, if you prefer more guidance, I have a few suggested paper topics that I can assign. As for the timing, each person/group should come to see me by February 18. You should feel free to either come during office hours or to schedule an appointment via email. A two-page written proposal is due by March 17. The final 10-15 page paper is due on May 22. The ideal paper contains a novel idea, the empirical strategy, and preliminary empirical results. However, I will accept significantly less as long as you show significant effort.3A natural presentation outlet for these papers is the Psychology and Economics Lunch. You are strongly encouraged to attend this lunch if you are interested in making Psychology and Economics one of your fields. In addition, you should attend the Psychology and Economics Seminar (Tu 2-4) as much as you can.