After completing the course, students will have developed the following
• Students will have an understanding of economic decision theory, and
are able to define the components of rationality and Bayesian updating.
• Students are able to formulate the main tenets and implications of the
economic theory of deterrence.
• Students know how different biases affect decision making under
uncertainty and in bargaining and are able to elucidate the main
behavioral theories of decision making under risk.
• Students understand the basic concepts of game theory, such as the
Nash equilibrium, and are able to use these concepts to analyse social
Over the last decades, behavioral economics has become one of the main
new research areas in economics. By testing predictions of traditional
economics and merging them with insights from psychology, behavioural
economics yields more accurate models of human decision-making. Insights
from this vibrant new field are relevant for policy makers in many
fields of inquiry, including the formation and implementation of legal
This course provides an introduction to behavioral economics, and shows
the relevance of an appropriate model of human decision making for the
analysis of legal rules. To provide an appropriate benchmark, the course
first introduces the basic building blocks of economic decision theory.
We discuss the tenets of rationality underlying the theory of utility
maximization under uncertainty and rational information processing. We
discuss applications to the economics of crime and bargaining.
We then discuss deviations from rationality, including such phenomena as
the endowment effect and loss aversion, and discuss improved models of
decision making such as prospect theory. We analyse the importance of
such models for the design of regulation, with specific attention to the
effectiveness of deterrence and the possibilities of `benevolent
paternalism’ or ‘nudging’.
The last part of the course deals with strategic interactions between
individuals, and provides an introduction to game theory and the
analysis of social dilemmas. We use simple games to investigate the
origins of social order and the interactions between formal law
enforcement mechanisms and informal social norms. We explore how such
norms can strengthen or weaken legal enforcement depending on the social
On the basis of a written exam and in-class exercises.
Detailed information about reading materials and the topics to be dealt
with in class will be available on Canvas.
This course is only open to students of the programme Law, Markets and