Teaching behavioral macroeconomics—Examples and applications

Abstract

The author of this article provides an example of how one might incorporate behavioral economics into teaching macroeconomics or labor economics at an undergraduate level. The focus is on two macroeconomic concepts—wage determination and the Phillips curve—and shows that the implications and conclusions of both models differ from their textbook versions, once behavioral aspects are taken into account. In order to do that, the author first presents the standard macroeconomic model in both cases, then stresses situations where homo economicus, i.e., the rationality assumption, does not hold, and finally introduces behavioral economics concepts that explain noted differences. The explanations are intertwined with small classroom experiments that can be part of the lecture and used to make the lecture more interesting and comprehensible.

Keywords:

• Behavioral economics
• efficiency wage
• labor market
• macroeconomics
• Phillips curve
• teaching

JEL CODES:

• A22 C91 D91 E7 J2 J31

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 Sims (2003) coined the term “rational inattention” to account for the fact that agents usually cannot process all available information, so they focus on only certain pieces of information. Because people are cognitively limited, they use simplifications, resulting in systematic biases in decision-making. According to this theory, lack of information thus results in people being error-prone. However, people can still decide on what type of mistakes to minimize. Rational inattention theory can, therefore, be thought of as an addition to the idea of cognitive limitation in that it describes what choices would be achievable given these limitations (Maćkowiak, Matějka, and Wiederholt 2023).