Thinking like an Economist: A Guide to Rational Decision Making

Assemble the intellectual tool kit that will be used throughout the course to help you see the world from an economist's perspective. The first tools in your kit are six principles of human behavior accepted by nearly all economists as fundamental.

Complete your tool kit for economic thinking with three key concepts. Learn what an economist means by rational decision making; how marginal analysis is used to solve complex problems; and how you combine these first two concepts to understand optimization.

Put your new tools to work by examining a central conclusion in economic thinking: that rational individual choices can - even though they might not always - produce socially efficient results, where no person can be made better off without harming another.

How do economists think about the rights and rules that govern human interactions? Using real-life examples and classic problems like the Prisoner's Dilemma, plunge into questions of ownership, trade, and compensation and how ideas like incentives and responsibilities are intimately connected to them.

Two case studies involving tragic fires help you grasp two classic economic situations—the Tragedy of the Commons and the difficulties of providing a public good. Then, apply what you have learned to see how an economist would think about the even larger problem of global climate change.

In the first of three lectures examining how economists approach situations where information is incomplete, imperfect, or inaccurate, learn that there can indeed be an optimal level of ignorance. Also, explore some cost-efficient ways to reduce uncertainty.

People can strategically use information—selectively controlling, hiding, or subsidizing it—to influence the decisions of others. Examine concepts like the informational blind date and information asymmetry and see how they can lead to consequences like adverse selection and even the 2008 financial crisis.

Safety, like everything, has a cost; at some point, being a little safer costs more than it is worth. By studying how economists evaluate risk, learn how the concept of expected value permits rational decision making in situations with risk, but also brings its own set of dangers.

Time can be one of the most important factors in economic thought; when events occur matters. This lecture looks at how economists deal with this critical factor, introducing you to concepts such as nominal versus real value and present versus future value.

Apply several of the new tools you've been working with to learn how an economist might confront one complex choice you have likely faced yourself: whether to purchase that extended warranty on an expensive consumer item like a big-screen television.

Despite the predictive power of conventional economic presumptions about fundamental rationality, behavioral economists are showing that we sometimes do things that indeed seem irrational. Delve into several examples of this and possible means of overcoming these behaviors.

Apply what you've learned by thinking like an economist about three different issues: doing a cost-benefit analysis of crime from a criminal's perspective; altering our own structure of incentives to motivate healthier behaviors; and finding policy solutions to traffic congestion and its resulting pollution.