About the Initiative
In 1987, a cross-disciplinary course at the University of California, Berkeley marked a milestone for a new field of study. Two professors, an economist and a psychologist, joined forces to teach a PhD class that used the analytical tools of social and cognitive psychology to investigate economic problems. Their teaching was a foundation for what is now known as behavioral economics. This line of study has reshaped the way scholars explain how people make choices, not only as consumers, investors, and employees, but also as voters, patients, students, and in many other areas of life. The two professors, George Akerlof and Daniel Kahneman, went on to win Nobel prizes. And Berkeley became a standard-bearer in this flourishing field, which emerged as a revolutionizing force in economics.
The Initiative for Behavioral Economics & Finance carries on this proud tradition and ensures that Berkeley remains a center of excellence in this field by supporting research, teaching, and graduate student training that meet the highest standards of scholarship, relevance, and innovation. The Initiative promotes Berkeley’s particular brand of behavioral economics on a global stage, an approach that combines rigorous economic analysis with insights drawn from psychology.
At Berkeley, behavioral economics is a centerpiece of the study of economics in both the Economics Department and at the Haas School of Business. Berkeley’s philosophy is that behavioral economics enriches rather than contradicts standard economic thought. When the tools of psychology are joined with the proven analytical methods of economics, the results are more powerful and scholars get closer to underlying truths about human behavior. As they build their models, economists learn how to take into account the complexity of the real world: People make mistakes, they have biases, they can’t always control their impulses, they react to social pressure. These insights help explain such economically relevant questions as why people make poor investment decisions, put off important tasks, and sacrifice long-term benefits for short-term gratification.
Behavioral economics research at Berkeley has used these principles to break new ground. Fischer Black Prize winner Ulrike Malmendier has studied managerial biases, such as CEO overconfidence. Stefano DellaVigna has developed new ways to examine media bias and political persuasion. Shachar Kariv has carried out experimental studies of risk aversion and altruism. Don Moore highlights the pervasiveness of overconfidence in decision-making. Financial researchers Terry Odean and David Sraer have explored investor behavior and developed psychologically realistic models of bubbles. Other Berkeley economists have used behavioral principles to conduct applied research on issues like domestic violence or vaccination programs in Africa.
Behavioral economists at Berkeley are also deeply committed to training the next generation of researchers. Four faculty members affiliated with the Initiative have received the Distinguished Teaching Award, Berkeley’s highest recognition of teaching excellence. Berkeley-trained behavioral economists can be found at leading institutions across the globe, spreading knowledge of ideas they learned at Berkeley.
Behavioral economics has played an important part in making Berkeley a leader in economic thought. By supporting research, teaching, and training of new generations of scholars, the Initiative for Behavioral Economics & Finance will help keep Berkeley at the forefront of this field for many years to come.