Be able to account for the basics of consumption theory and explain the notion of Homo economicus.
Be able to apply the models discussed in analyses of economic issues.
Know which kinds of questions may be answered by using consumption theory.
Be able to account for when consumption theory may be used to explain human behaviour.
Know and be able to account for how behavioural economics is related to consumption theory.
Know and be able to account for how economic theories are being evaluated with empirical methods.
This course deals with how microeconomic theory, or more specifically consumption theory, is used to predict and understand people’s decisions. The starting point is a theoretical model of an individual who rationally weighs the pros and cons of different choices, and then chooses the best one based on his or her preferences and the limitations presented in a real world setting. The purpose of this course is to give the students a good idea of how microeconomic theory may be used to understand why people make the choices they do, in addition to present the great number of issues which may be analysed using microeconomic theory. Furthermore, the course also aims to illustrate how economic theory may be used to offer guidance in matters of personal economic planning.
This course consists of three parts. In the first part, the basics of microeconomic theory regarding individual choices – the so-called consumption theory – is discussed. The notion of humans as rational utility maximisers is discussed thoroughly. In the second part, a number of important matters of personal economy are analysed based on consumption theory. The course deals with questions like:
When is it rational to save, or for that matter, borrow money?
When is it rational to avoid risk by purchasing insurance?
How do we assess value of a house?
In the third part of the course, we discuss current studies using micro theory in order to understand vastly different phenomena, such as:
Why people commit crime.
Which political party people vote for.
We also, throughout the course, discuss the criticism originating from the fields of psychology and what is called behavioural economics regarding the usefulness of models based on the notion that people are rational utility maximisers.
The course is based on lectures, group exercises and seminars.
This course uses the following grades: Pass with distinction, Pass and Fail. The examination of this course is done by means of a written exam. Satisfactory participation in seminars gives points to the written exam.