A DETAILED LESSON PLAN IN BEHAVIORAL ECONOMICS

I. OBJECTIVES
At the end of the lesson the students should be able to:
 Define Behavioral Economics.
 Identify the three different types of neoclassical expected utility
theory.
 Give an example of behavioral economic theory.

II. CONTENT
Subject Matter: Introduction to Behavioral economics: Acting Irrationally
Time/Allotment: 60 Minutes
Materials: Power Point Presentation, Laptop, Whiteboard, Projector, Worksheets
References:
 https://www.exploring-economics.org/en/orientation/behavioral-economics/
 https://academy4sc.org/video/introduction-to-behavioral-economics-
acting-irrationally/

III. LEARNING PROCEDURE

Teacher’s Hint Teacher’s Activity Students Activity

A. Preliminary
Activities
 Greetings Good morning class! How is Good afternoon, Ma’am.
your day so far? We are fine.

That’s good to hear! So, can I

expect a full blast of energy and Yes Ma’am.
active participation from you?
  Prayer Before we begin the lesson this
afternoon, let us ask the
guidance of almighty God and (Student will lead the
let us enlighten our mind to prayer)
completely understand the
lesson this morning. Would you
please lead the prayer?

 Classroom
I would like to request everyone (Students will arrange their
Managemen
to arrange your chairs properly chairs and will pick up the
t
and make sure there are no trashes.)
trashes around you.

 Checking of I think everyone is present. I’m

attendance so glad that everyone
understands the reasons of
coming to school regularly.

B. Motivation Before we proceed to our main (The whole class will

topic, I’ll show you a video participate in the
presentation entitled discussion and watch
“Introduction to Behavioral attentively.)
Economics: Acting Irrationally”,
that is connected for today's
discussion. While you’re watching,
I want you to give a brief
discussion to the following
question:

1. What is Behavioral
Economics?
2. What theory was proposed by
Thaler and Sunstein to win
them the Nobel Prize?
3. Give an example of a
behavioral economics theory?

After that, I’ll pin point somebody

to answer one of the questions.

So, what did you learned about

the video presentation?
(A student volunteer and
answers: Ma’am, it is
said that Behavioral
economics is the study of
 decision-making and,
human decision-making
is, many times, very
irrational. We make
decisions with emotion
and use heuristics (or
rules of thumb) to short-
cut optimal decision-
making. We don't
calculate the opportunity
cost of our actions and
look to others to guide
Very good. Thank you! us.)

C. Recall

Let’s have a short review on the

past lesson that we have for
behavioral economics.

Define behavioral economics in (A student will raise hand

simple words. and answer: Behavioral
economics combines
elements of economics
and psychology to
understand how and why
people behave the way
they do in the real world.)
Your answer is correct. Thank
you.

D. Lesson Proper

 Activity We will have an activity called,

THINK-PAIR- SHARE. Do you ‘No.’
know what it is?

I will have two students pair up

and come up with 3 types of
behavioral economic theories
that will be discussed and how
they would apply them to
their everyday life.   

Have I made myself clear? “Yes, Ma’am.”

 How did you find the activity? (Students will tell their
experiences when
playing the game.)

 Analysis So, our topic for this morning (Students will listen
was all about Behavioral attentively.)
Economics.
(A student will voluntarily
So, from our activity, what do give answer: Behavioral
you think behavioral economics Economics blends the
are all about? studies of Psychology
and Economics,
analyzing how   it links to
the economic decision-
making processes of
people and institutions.)
Correct. Very good.

(Students quietly listen.)

Behavioral economics deals
with observing behaviour and
economic decision making
behaviour.

Terminology, Analysis and

Conception of The Economy
 Humans are described
as behaving in
accordance with
‘bounded rationality’.
 Based on neoclassical
decision theory, the
behavioral economist
Matthew Rabin (2002)
developed three
deviations from
neoclassical economics’
‘expected utility theory’;
these have become vital
 differentiations in
behavioral economics
research.

 Non-standard
preferences refer to
elements that form part
of the utility function:
 
 Social
preferences:
These include
evidence for
altruism and
reciprocity.
Example: Humans
do not only care
for their own
share, but also
care for the
distribution (Rabin
1993, Levine
1998, Fehr and
Schmidt 1999,
Bolton and
Ockenfels 2000).
 
 Time
preferences:
Humans do not
consistently
discount over
time, but do often
have a preference
for the present. As
a result, decisions
concerning future
investments and
savings deviate
from neoclassical
predictions
(Frederick,
Loewenstein and
O'Donoghue
 2002).
 
 Non-standard
beliefs concern the part
of the decision-making
process in which
probabilities need to be
taken into account:
 
 Overconfidence:
Humans tend to
overestimate their
own capabilities.
For instance, 93%
of all drivers in the
U.S.A. assume
they drive better
than the average
driver (Svenson
1981). Similarly,
managers of big
companies
overestimate their
capabilities
(Malmendier and
Tate 2005).
 
 The law of small
numbers:
Humans tend to
extrapolate from a
small sample to
the whole
statistical
population. For
example, even if a
fund manager
works better than
the market
average for three
years, this does
not imply that high
performance will
necessarily
continue for years
to come.
  
 Non-standard decision-
making concerns the
guideline of decisions,
maximization being the
normal case:
 
 Framing:
Decisions do not
only depend on
the expected
results but also on
the way the result
is presented.
Doctors rather
tend to use a risky
medication if it is
promoted using
the phrase ‘saves
90 out of 100’
rather than ‘kills
10 out of 100’
(Tversky and
Kahneman 1981).
 
 Heuristics:
Humans use a
variety of rules of
thumb in order to
reach a decision
more quickly. The
Availability
Heuristic
describes the
overestimation of
probabilities if an
event is
cognitively
available. For
example, after a
plane crash that
has been covered
by the media
worldwide,
humans
overestimate the
 probability of a
plane crash in
comparison to
periods of time in
which no
accidents occur
(Thaler and
Sunstein 2008).

 The use of the term ‘non-

(Students answered)
standard’ in Rabin’s
classification clearly
 Abstraction illustrates the orientation
towards mainstream
economics.
 Daniel Kahneman and
Amos Tversky’s
‘prospect theory’ (1979) “Yes, ma’am. “
mostly maintains the
concept of utility
maximization although in (The students raised
their hand and joined the
their model losses are
discussion attentively.)
weighted twice as much
as gains.

Did you understand

class?

Now, I have prepared

three questions. And I
will give points to those
who will participate in the
discussion. Am I clear?
 These are the questions:
1. What are some ways
 Application that Behavioral
economics currently
affects your life? “Yes, Ma’am. “
2. How would you apply
the concepts of
Behavioral Economics to
either
improve your decision-
(Students listen carefully
making or change it?
to the instruction.)
3. Which of the four
Behavioral Economic
theories that we
introduced do you
find most interesting and
why?

Very good! You’re indeed

excellent learners.
(Students answered
excitedly.)

In this juncture, we will be

having another activity. Do you
have access to the internet? (Group 1 stand up and
present their research.)

Okay. Good.

(Group 2 stand up and

 also present their
research.)
I will get you into groups of
2 and find examples on the
internet of the federal
government or a local
(Students claps with
government applying a concept joy.)
 Generalization of behavioral economics to
sway its citizens into something
it wanted them to do. What was
the action they took? What did
the government want them to
(Students started raising
do? After that, present it in front their hands and answer
of everyone. I will give you 20 the given question.)
mins. to complete the task.

20 mins. later….

Okay time is up. Who will be our

first presenter?
Excellent Group 1. Everyone
gives them a round of applause.

Okay. Next group.

Excellent Group 2. Everyone

gives them a round of applause.

Everyone gives yourself a round

of applause for a job well done.

Now, I want you to test if you

 really understood our topic.

What are the differences

between Non-standard
preferences, Non-standard
beliefs, and Non-standard
decision-making?

Thank you for cooperation,

class.

IV. EVALUATION

Multiple Choice. Read the given statement and encircle the correct answer.
1. Behavioral economics is a rather recent field of mainstream economics; it
predominantly deals with human behavior’s deviations.
a. Epistemology c. Core Elements
b. Terminology d. Methodology

2. Decisions do not only depend on the expected results but also on the way the
result is presented.
a. Time Preferences c. The law of small
b. Overconfidence numbers
d. Framing

3. It clearly illustrates the orientation towards mainstream economics.

a. Heuristics c. Non- standard
b. Framing d. Overconfidence

4. Humans do not consistently discount over time, but do often have a

preference for the present.
a. Non-standard c. Social preferences
decision-making d. Time Preferences
b. The law of small
numbers

5. It concerns the guideline of decisions, maximization being the normal case.

 a. Non-standard preferences
b. Non-standard decision-making
c. Non-standard beliefs

Answer: 1. C 2. D 3. C. 4. D. 5. B
V. ASSIGNMENT
Make an advance reading about “Evolution of Economics as a Theory-
Testing Discipline”. We will have a short quiz about it before we proceed to our
main topic.
PREPARED BY: (BSED SCIENCE 3)
Juvy Ann Patosa
Nelvin Catayas