Robert Shiller Administrative Assistant: carol.copeland@yale.edu, 432-3726, 30 Hillhouse Ave., Room 11a Behavioral economics incorporates insights from other social sciences, such as psychology and sociology, into economic models, and attempts to explain anomalies that defy standard economic analysis. Institutional economics is the study of the evolution of economic organizations, laws, contracts, and customs as part of a historical and continuing process of economic development. Behavioral economics and institutional economics are naturally treated together, since so much of the logic and design of economic institutions has to do with complexities of human behavior. Topics include economic fluctuations and speculation, herd behavior, attitudes towards risk, money illusion, involuntary unemployment, saving, investment, poverty, identiy, religion, trust, risk management and social welfare institutions. Course Requirements: Problem sets, short term paper on one of the topics on the reading list, take-home final exam of short essay form. Three class sessions will be set aside for discussion of term paper topics: October 13, November 3, December 1. No class November 17. Required Purchases (Audubon Copy Center): 1. Shiller, Robert J., Irrational Exuberance 2nd Edition, 2005 (prepublication draft, 2004) 2. Packet of Economics 527 readings
1. Introduction and Methodology, September 1Akerlof, George, and Robert J. Shiller, "Behavioral Macroeconomics," (Packet) Shiller, Robert, The New Financial Order: Risk in the 21st Century Intoduction, pp. 1-18 (Packet) Barberis, Nicholas, and Richard C. Thaler, "A Survey of Behavioral Finance," NBER Working Paper No. w9222, 2002, www.nber.org. Mitchell, Wesley C., "Commons on Institutional Economics," The American Economic Review, 25(4):635-52, December 1935. JSTOR Joskow, Paul A. "The New Institutional Economics: A Report Card," ISNIE Presidential Address, 2004, http://www.isnie.org/ISNIE03/papers03/JOSKOW?PRESIDENTIAL%20FINAL?9?13?03.pdf Wilson, E. O. Consilience: The Unity of Knowledge Knopf, 1998 RESERVE Koopmans, Tjalling "Measurement without Theory," Review of Economics and Statistics 29:161-72, August 1947 JSTOR Sims, Christopher A. "Macroeconomics and Reality," Econometrica 48:148, January 1980. JSTOR Popper, Karl R. The Logic of Scientific Discovery Section 1 and Section 20, New York, Science Editions, 1961. RESERVE Caldwell, Bruce J., "Clarifying Popper," Journal of Economic Literature 29(1):1-33, 1991. JSTOR Friedman, Milton, "The Methodology of Positive Economics," in M. Friedman Essays in Positive Economics
Chicago: University of Chicago Press, 1956. RESERVE
2. Economic Fluctuations and Speculation, September 6Irrational Exuberance Chapters 1 and 2 Romer, Christina, "The Great Crash and the Onset of the Great Depression," Quarterly Journal of Economics, 105(3) (August 1990), pp. 597-624. JSTOR Sachs, Jeffrey, and Stephen Radelet,
"The Onset of the East Asian Financial Crisis," NBER Working Paper No. w6680, August 1998
Brookings Papers on Economic Activity 28-1, pp. 1-74, 1998,
3. Zeitgeist and Confidence, September 8Irrational Exuberance Chapters 3, 6, and 7 Khurana, Rakesh, Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs Princeton University Press, 2004. RESERVE Frum, David,How We Got Here: The 70s, The Decade that Brought You Modern Life--For Better or Worse RESERVE Katona, George, "On the Origin of Changes in Attitudes," Chapter 5 in George Katona,
The Powerful Consumer: Psychological Studies of the American Economy, 1960, McGraw-Hill Book Company, Inc., pp. 68-79.
(Packet)
4. Feedback, September 13Irrational Exuberance Chapter 4 Barberis, Nicholas, and Andrei Shelifer, Style Investing NBER Working Paper No. w8039, December 2000. Barberis, Nicholas, Andrei Shleifer, and Robert Vishny,
"A Model of Investor Sentiment," Journal of Financial Economics, 49 (1998): 307 Campbell, John Y. and John H. Cochrane,
"By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," NBER Working Paper, 1995.
Bikhchandani, D., David Hirshleifer and Ivo Welch, "A Theory of Fashion, Social Custom and Cultural Change,"
Journal of Political Economy 81:637-54, 1992. JSTOR
Avery, Christopher, and Peter Zemsky, "Multidimensional Uncertainty and Herd Behavior in Financial Markets,"
American Economic Review 88(4):724-48, 1998. JSTOR
Banerjee, Abhijit, "A Simple Model of Herd Behavior," Quarterly Journal of Economics107(3):979-817,
1992. JSTOR
Lee, In Ho, "Market Crashes and Informational Avalanches," The Review of Economic Studies
65(4):741-60, 1998. JSTOR
Irrational Exuberance Chapters 10 and 11
Siegel, Jeremy J. and Thaler, Richard H. "Anomalies: The Equity Premium Puzzle."
Journal of Economic Perspectives, Winter, 1997, 11(1), pp. 191-200. JSTOR
Kahneman, Daniel, and Amos Tversky, "Prospect Theory," Econometrica 1989. JSTOR.
Barberis, Nicholas, Ming Huang and Tano Santos,
"Prospect Theory and Asset Prices,"
Quarterly Journal of Economics 116(1):1 2001
Thaler, Richard and E. J. Johnston, "Gambling with the HOuse Money and Trying to Break Even:
The Effects of Prior Outcomes on Risky Choice," Management Science 36:643-60. JSTOR: Search under business
Fisher, Irving, The Money Illusion, Adelphi Company Publishers, New York, 1928, Ch. I,
"A Glance at the Money Illusion," pp. 3-18. Packet
Kahneman, Daniel, Jack Knetsch and Richard H. Thaler, "Fairness as a Constraint on Profit-Seeking: Entitlements in
the Market," American Economic Review September 76:4 (September 1986) pp. 728-41. Packet, JSTOR
Eldar Shafir, Diamond, Peter, and Tversky, Amos. "Money Illusion."
Quarterly Journal of Economics, May 1997, 112(2), pp. 341-74. JSTOR
Shiller, Robert J.,
"Why Do People Dislike Inflation?" in Christina D. Romer and David H. Romer, eds.,
Reducing inflation: Motivation and Strategy.
NBER Studies in Business Cycles, vol. 30. Chicago and London: University of Chicago Press, 1997, pp. 13-65.
Zeckhauser "Schmeduling," unpublished paper,
Kennedy School, 2004.
Heidhues, Paul, and Botond Koszegi, "The Impact of Consumer Loss Aversion on Pricing," Heidhues-Koszegi-Pricing.pdf
Shiller, Robert J. "New Units of Measurement and Electronic Money," in The New Financial Order Princeton, 2003
(Packet)
Yellen, Janet L. "Efficiency Wage Models of Unemployment." American Economic Review,
May, 1984 (Papers and Proceedings), 74(2), pp. 200-5. packet, JSTOR
Krueger, Alan B., and Lawrence H. Summers, "Efficiency Wages and the Interindustry Wage Structure,"
Econometrica, 56(2) (March 1988), pp. 259-93. packet, JSTOR
Fehr, Ernst, Georg Kirchsteiger and Arno Riedl. "Does Fairness Prevent Market Clearing? An Experimental Investigation."
Quarterly Journal of Economics, May 1993, 108(2), pp. 437-59. packet, JSTOR
Blanchard, Olivier, and Lawrence Summers, "Hysteresis in Unemployment,"
European Economic Review, 31:1/2 (February-March 1987), pp. 288-95. packet, JSTOR
Paola Giuliano "The Determinants of Living Arrangements" Giuliano_Paper.pdf
Bewley, Truman, Why Wages Don't Fall During a Recession, Chapter 11, pp. 170-198. Cambridge, MA: Harvard University Press, 1999.
Chapter 11, "Resistance to Pay Reduction," pp. 170-198. Packet RESERVE
Akerlof, George A., William T. Dickens and George L. Perry.
"Near-Rational Wage and Price Setting and the Long-Run Phillips Curve."
Brookings Papers on Economic Activity; 2000:1, pp. 1-44. Packet
Mankiw, N. Gregory and Ricardo Reis.
"Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve,"
Quarterly Journal of Economics, 117:4 (November 2002) pp.1295-1328. Packet
George A. Akerlof and Janet L. Yellen. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia,"
Quarterly Journal of Economics, Supplement 1985a, 100(5), pp. 823-38. Packet JSTOR
`Mankiw, N. Gregory. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model."
Quarterly Journal of Economics, May 1985, 110(2), pp. 529-38. Packet JSTOR
Shefrin, Hersh M., and Richard Thaler, "The Behavioral Life-Cycle Hypothesis,"
Economic Inquiry, 26:4 (October, 1988), pp. 609-43. Packet JSTOR
Thaler, Richard H. and Shlomo Benartzi
Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving,"
unpublished paper, University of Chicago, 2001 (forthcoming, Journal of Political Economy)
Angeletos, George-Marios, David Laibson, Andrea Repetto, Jeremy Tobacman, and Stephen Weinberg,
"The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation,"
Journal of Economic Perspectives, 15:3 (Summer 2001), pp. 47-68. Packet JSTOR
Bernheim, B. Douglas, Jonathan Skinner, and Steven Weinberg.
"What Accounts for the Variation in Retirement Wealth Among U.S. Households?"
American Economic Review, September 2001, 91(4), pp. 832-55.
Bond, Stephen R. and Jason G. Cummins, "The Stock Market and Investment in the New Economy: Some Tangible
Facts and Intangible Fictions," Brookings Papers on Economic Activity, 2000:1, pp. 61-108. Packet
Lamont, Owen, "Cash Flow and Investment: Evidence from Internal Capital Markets,"
Journal of Finance, 52:1 (March 1997) pp. 83?109. JSTOR
Howitt, Peter and Robert Clower.
"The Emergence of Economic Organization."
Journal of Economic Behavior and Organization, January 2000, 41(1), pp. 55?84. Packet
Fehr, Ernst, and Jean Robert Tyran, "Does Money Illusion Matter?"
American Economic Review, December, 2001, 91(5), pp. 1239-62. Packet
Akerlof, George A., and Rachel E. Kranton, "Economics and
Identity." Quarterly Journal of Economics, August 2000, 115(3), pp. 715-53. Packet
Weber, Max, The Protestant Ethic and the 'Spirit' of Capitalism
Chapter I (Religious Affiliation and Social Stratification) and
II (The Spirit of Capitalism) translated by Talcott Parsons,
Routledge 2002 [1904-5, 1930] RESERVE
Barro, Robert J. and Rachel McCleary "Religion and Economic Growth,"
NBER Working Paper No. w9682, May 2003.
caballero, Ricardo, Kevin Cowan, and Jonathan Kearns,
"Fear of Sudden Stops: Lessons from Australia and Chile"
NBER Working Paper No. 10519, May 2004.
Glaeser, Edward L., David Laibson, Jose A. Scheinkman and Chirstine L. Soutter,
"What is Social Capital? The Determinants of Trust and Trustworthiness" NBER Working Paper, 1999.
Moss, David, When All Else Fails: Government as the Ultimate Risk Manager Harvard University Press, 2004. RESERVE
Shiller, Robert J., The New Financial Order, Chapter 9: "Macro Markets Trading the
Biggest Risks." Packet
Baxter, Marianne, and Urban Jermann, "The International Diversification Puzzle is
Worse Than You Think, America Economic Review, March 1997, 87:170-80. JSTOR Bottazzi, Laura, Paulo Pesenti, and Eric van Wincoop, "Wages, Profits, and the
International Portfolio Puzzle," European Economic Review, 1996, 40:
219254. JSTOR Brainard, William, and F.T. Dolbear, "Social Risk in Financial Markets,"
American Economic Review, 1971, 61: 360370. JSTOR Backus, David, Patrick Kehoe, and Finn Kydland, "International Real Business
Cycles," Journal of Political Economy, 1992, 100: 745775. JSTOR Davis, Steven, Jeremy Nalewaik and Paul Willen, "On the Gains to International
Trade in Risky Financial Assets,"; NBER Working Paper No. 7796, 2000.
Baxter, Marianne, Urban J. Jermann, and Robert G. King, "Synthetic Returns on
NIPA Assets: An International Comparison," European Economic Review, 1998,
42: 1141-172. JSTOR Caballero, Ricardo J., and Arvind Krishnamurthy,
"Smoothing Sudden Stops," NBER Working Paper #8427, 2001, Athanasoulis, Stefano, and Robert J. Shiller "World Income Components: Measuring
and Exploiting International Risk-Sharing Opportunities," American Economic
Review, September 2001, Cowles
Foundation Discussion Paper No. 1239. Froot, Kenneth,
"The Market for Catastrophe Risk: A Clinical Examination,"
NBER Working Paper No. 8110, 2001.
Caplin, Andrew, Sewin Chan, Charles Freeman, and Joseph Tracy, Housing
Partnerships: A New Approach to a Market at a Crossroads, MIT Press, 1997. JSTOR Shiller, Robert J., and Allan N. Weiss, "Home Equity Insurance" Journal
of Real Estate Finance and Economics, 1999.
Sinai, Todd, and Nicholas Souleles,
"Owner Occupied Housing as Insurance Against Rent Risk," unpublished paper, Wharton School, University of Pennsylvania, May 2001. Case, Bradford, William Goetzmann, and Geert Rouwenhorst, "Global Real Estate
Markets: Cycles and Fundamentals," Yale University, March 1999.
Easterly, William, The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics MIT Press, 2002.
RESERVE
Stiglitz, Joseph Globalization and Its Discontents W.W. Norton, 2003. RESERVE
De Soto, Hernando, Mystery of Capital: Why Capitalism Succeeds in the West and Fails Everywhere Else Basic Books, 2003. RESERVE
Gordon, Robert J.,
"Why Was Europe Left at the Station when America's Productivity Locomotive Departed?" Discussion
Paper No. 4416, Centre for Economic Policy Research, 2004,
Clark, Gregory, "Why Isn't the Whole World Developed? Lessons from the Cotton Mills,"
The Journal of Economic History 47(1):141-73, March 1987. JSTOR
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