Behavioral Economics

Behavioral Economics has developed into an independent field of study over the past few decades and is now also found within individual subfields of economics, such as Behavioral Finance, Behavioral Macroeconomics, or Behavioral Industrial Organization. What all these approaches have in common is that they are based on a richer understanding of human behavior, going beyond the standard assumption of rationality and self-interest.

Well-known economists from the early days, such as Adam Smith, had already questioned the standard assumptions. However, at that time, there was no convincing alternative model, and in most cases, the standard assumptions provided good predictions and served as the basis for economic policy recommendations. The experimentally discovered "biases"—systematic deviations from the standard assumptions—were the first steps toward behavioral economics, initially undertaken by psychologists. Over time, it became clear that these observed biases were sufficiently systematic to build independent theories of behavior and to offer recommendations on an individual, economic, and political level. These recommendations were increasingly tested in field experiments. In particular, 'behavioral nudging'—influencing behavior without explicitly restricting it—was tested extensively, but has also sparked significant controversy.

Current research questions concern the heterogeneity of preferences and biases—how they differ across cultures and how they have developed over time. And how do they matter? What environments and institutions are most affected by biases, where have these biases a strong impact on welfare? And, of course, which interventions can leverage specific biases to produce positive effects, and what measures can reduce biases where they have negative consequences?

Keynotes

Our keynote lectures provide us spotlight on such topics. Matthew Rabin (Harvard University) has made fundamental contributions to modeling human behavior, such as reciprocity, risk, or reference points. Ulrike Malmendier (University of California, Berkeley) conducted influential studies on cognitive biases such as time inconsistency or overconfidence in laboratory and field experiments, and most recently on how past experiences shape economic preferences and beliefs. Lucia Reisch (Cambridge Judge Business School) has made significant contributions to understanding the influence of psychological factors on consumer behavior and decision-making. Her research in consumer protection has also led to her role as a consultant, collaborating with the EU, the World Bank, and governments worldwide.

From Nudges to Dark Patterns: Behavioural Consumer Policy in the Age of Buy Now, Pay Later

This talk examines the evolution of behavioural consumer policy, from its early focus on improving disclosure, defaults, and consumer decision environments to its contemporary relevance in digital markets. The central argument is that the policy frontier has shifted from helping boundedly rational consumers choose well to governing firms’ strategic design of choice architectures. In digital environments, behavioural biases are no longer merely deviations from rational choice assumptions; they can become inputs to scalable, personalized, and opaque business models. The talk illustrates this shift through the expansion of Buy Now, Pay Later (BNPL) credit. BNPL may relax liquidity constraints and smooth consumption, but it may also reduce payment salience, fragment repayment obligations, and amplify impulsive or compulsive spending. Drawing on recent evidence and new empirical work from Germany on BNPL use and compulsive buying tendencies, the talk outlines implications for a next-generation behavioural consumer policy agenda. It argues for a framework that combines behavioural market diagnostics, design duties for online choice architecture, and targeted protections for vulnerable consumers.

Moderation: Jürgen Huber (University of Innsbruck)

Risky Living

Building from an updated version of the model in Koszegi and Rabin (2009), we consider how news utility and loss aversion influence repeat purchases of drugs, as well as purchases of durable goods. The emphasis is on the dynamics of risk attitudes towards day-to-day consumption uncertainties rather than attitudes towards unexpected, one-shot money gambles. We show that, fixing the intrinsic consumption utility for the consumer, loss aversion predicts a greater taste (1) for purchasing and insuring a meliorative drug than a recreational drug, and (2) for purchasing a durable good that can be re-purchased when it breaks, and that doesn't generate random foreboding over when it may break.

Moderation: Klaus M. Schmidt (LMU Munich)

Experience Effects and Central Banking -- Inflation Expectations, Anchoring, and Policy Rates

Moderation: Dorothea Kübler (WZB / TU Berlin)

Panel of the Core Conference

Tuesday 15 Sept. / 16:30-17:30

Behavioral economics in action

How are insights from behavioral economics used for giving advice to policy makers, firms, or consumers? In this panel we discuss with behavioral economists who apply their insights in practical settings beyond academia. Which findings are truly generalizable? Are there standard behavioral theories that work well in practice? And what evidence should guide decisions in applied settings?

Moderation: Urs Fischbacher (University of Konstanz)

Panelists: 

• Ernst Fehr (University of Zurich)
• Martin Kocher (Österreichische Nationalbank, University of Vienna)
• Ulrike Malmendier (University of California, Berkeley)
• Lucia A. Reisch (Cambridge Judge Business School)