27/07/2020  •  7 min read

A very exciting new addition to the revised IB Economics course is the inclusion of pathfinding work done in the field of Behavioural Economics. As is widely understood, behavioural economics is the field of study involving an understanding of how the human mind works to make decisions. In fact, it was an Israeli Psychologist duo – Daniel Kahneman and Amos Tversky – whose research on the decision making process got the attention of Economists and Psychologists alike. This field challenges the notion that all human beings take all their decisions in a rational way. The human mind looks for quick and uncomplicated ways to arrive at a decision which can be impacted by several non-rational variables – like the time of the day, actions of our neighbours, or even the music being played in the background.

How is the syllabus for Behavioural Economics structured in IB Economics?

It is encouraging to see that the content from Behavioural Economics has been well aligned with the research work of Daniel Kahneman, Amos Tversky, Richard Thaler and Cass Sunstein, three of whom have been awarded the Nobel Prize in Economics for their pioneering work in this field. Their prominent work in Economics has been added to the syllabus in a way that covers the basic grounds and building blocks in an unadulterated way. 

The following topics from Behavioural Economics have been added to the new IB Economics curriculum:

A. Rational consumer choice (HL only) 

• Assumptions—consumer rationality, utility maximization and perfect information 
• Behavioural economics—limitations of the assumptions of rational consumer choice 
  • Biases—rule of thumb, anchoring and framing, availability 
  • Bounded rationality 
  • Bounded self-control 
  • Bounded selfishness 
  • Imperfect information

B. Behavioural economics in action (HL only)

• Choice architecture—default, restricted, and mandated choices 
• Nudge theory 

Section A is based entirely on the collaborative work of Daniel Kahneman and Amos Tversky, and a good way to have an understanding of their work lies in the book titled, “Thinking Fast and Slow” written by Daniel Kahneman. Teachers who read this book will realise that it reveals the details of this field of study in all its glory and toil. This exercise should add depth to your views and opinions and in turn, help inspire the students to make a meaningful career in this field. The most relevant sections of this book, pertaining to IB Economics are Part I: Two Systems and Part II: Heuristics and Biases. I highly recommend that teachers expected to teach the new curriculum go through these parts during the summer break to be able to confidently plan lessons for their cohorts.

Section B is based on the works of Richard Thaler and Cass Sunstein which has been explained in depth in their 2008 book called “Nudge: Improving Decisions about Health, Wealth, and Happiness”. This section deals with how the learning from behavioural economics can be put in practice to gently influence economic stakeholders towards making decisions that socially and/or personally provide higher utility.

What is the best way to teach Behavioural Economics?

This may be best left to the teachers and the ability of the cohort that they will teach to decide what is the right approach. I have instructed some summer classes to keep new students starting IB in 2020 engaged for their summer. In my experience, a good way to teach this HL-only section (where I would strongly suggest that even SL groups attend classes on this section) is through discussion around the work of the prominent Economists and Psychologists who have brought this field to life. A good idea would be to send some reading material to your students, carefully curated by you, and let them draw mind maps to be able to capture their understanding. This mind map could then be discussed in the class. The good part about doing this exercise is that a variety of perspectives are heard as the minds of our students interpret the texts in their own contexts. You can see a mind map made by one of my students here.

There are some very interesting research papers that can also be discussed. The one that I found particularly helpful and simple was about reframing a choice relating to child daycare pickup. This is a famous 1998 experiment carried out by two Israeli economists, Uri Gneezy and Aldo Rustichini, who wanted to find out how parents would react to a new system of fines for those who were late to pick up their children.

Based on the size of your cohort, you could carry out simulations of the experiments carried out in this field to understand the underlying factors that impact decision making. (More on this in another blog). I had a small cohort of 7 students with whom I carried out a simple simulation adapted from the experiment by Daniel Kahneman himself. The simulation has questions in the form of a quiz that were adaptations of items from research studies from the 1960s to the 1980s, led by Daniel Kahneman and his research partner, Amos Tversky. The answers to those questions determined whether an individual’s decision making to arrive at his/her answer were rational or not. At the end of this activity, the students were able to see what rational decision making looks like and were very excited to design their own experiments and run them on their friends and classmates! You can check out the questions and modify its language for your group of students here.

Real Life Issues in Behavioural Economics

The new IB Economics curriculum focuses heavily on inquiry-based teaching and learning, with use of study of real-world issues and examples as an important component of inquiry.

Behavioural Economics, like the whole of Economics, is all about real life connections. The reason why behavioural Economics rose in popularity and became prominent in supporting policy decisions in governments and organisations around the world is due to the importance given to how various stakeholders behave in real life, outside of textbooks. Rational individuals do exist, but only in textbooks. In the real world you would find, as Dan Ariely says, predictably irrational beings. All the social experiments upon which the foundation of this field is built have been carried out in a real-life setting. Choice architecture and Nudge theory have been widely applied in improving decision making at both the individual and collective level – be it the 3D zebra crossing in India to reduce road accidents, to the default choice of “opt out” in the 401K enrolment process to increase the contribution to the 401K plan. The practitioners in the field are actively involved in improving the functioning of the world around us.

My impression is that teachers will find it exciting to draw these real life connections for this topic in their classes. The students should also be able to relate to the idea of “irrationality” and give examples from their own contexts and backgrounds.

I wish everyone a fun and collaborative journey of enquiry as you embark on facilitating the new IB Economics Curriculum.