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Impact of Bias on Decision-Making and Insights from Behavioural Economics

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Impact of Bias on Decision-Making and Insights from Behavioural Economics

Developments in psychology over the past several decades and the emergence of the field of behavioural economics have challenged the assumptions behind models of rational decision-making. This topic deals with the impact of cognitive biases on decision-making and explores approaches to take this into account.

Topic Learning Outcome: Students will understand and be able to apply key insights from the field of behavioural economics in the process of analyzing policy choices.

Core Concepts Associated with this Topic: Negativity Bias; Anchoring Effect; Confirmation Bias; Groupthink.

Recommended Reading

Rutgers University: 34:833:543 Economics and Public Policy

Tversky, Amos and Kahneman, Daniel. 1982. "Judgement under Uncertainty: Heuristics and Biases." Cambridge University Press, New York.

University of Toronto: PPG 1001 The Policy Process

Wilson, Rick. 2011. “The Contribution of Behavioral Economics to Political Science.” Annual Review of Political Science 14: 201-223.

March, James G. and Johan P. Olsen. 1996. “Institutional Perspectives on Political Institutions.” Governance 9, 3: 247-264.

Forester, John. “Bounded Rationality and the Politics of Muddling Through.” Public Administration Review 44, 1 (January 1984), 23-31.

Henrich, John, et al. 2001. “In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies.” The American Economic Review 91, 2: 73-78.

Jones, Bryan D. “Bounded Rationality.” Annual Review of Political Science 2 (1999), 297-321.

Lindblom, Charles. 1959. “The Science of Muddling Through.” Public Administration Review 19, 2:79-88.

Renwick Monroe, Kristen and Kristen Hill Maher. 1995. “Psychology and Rational Actor Theory.” Political Psychology 16, 1: 1-21.

Tversky, Amos and Daniel Kahneman. 1981. “The Framing of Decisions and the Psychology of Choice.” Science 211, 4481 : 453-458.

Harvard University: MLD-110B Strategic Management

Small, D., Loewenstein, G., & Slovic, P. (2007). "Sympathy and callousness: The impact of deliberative thought on donations to identifiable and statistical victims." Organizational Behavior and Human Decision Processes, 102, 143-153.

Malcolm Gladwell. (2005). Chapter 3, "The Warren Harding Error: Why We Fall for Tall, Dark, and Handsome," in Blink: The Power of Thinking Without Thinking. Pages 72-98.

 

Sample Assessment Questions:

1.) What is confirmation bias? Why is this concept important for people working in public management to understand?

2.) What are heuristics and biases?

3.) "People systematically behave in irrational, self-harming ways because of cognitive bias, and government should therefore intervene to protect people from their own biased and flawed decision making." Discuss this statement in a short 2-3 page response. You may, but need not, offer an endorsement or rejection of the statement. Please support your argument with real-world evidence.

Page updated by Sean Goertzen and Ben Eisen on 19 May 2015.

 


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School of Public Policy and Governance