This assignment is designed to achieve the set learning goals, including enhancing your analytical reasoning skills and ability to critically evaluate relevant theoretical literature and empirical evidence, and also apply learned behavioural economics concepts and models to explain puzzling economic and financial markets phenomena.
Answer only one of the following two questions. Make sure you answer all parts A, B, and C of your chosen question. For each question present relevant theory, concepts, diagrams, and empirical evidence. You may also discuss practical applications.
Question 1. A. Critically discuss two pillars of behavioural economics (cognitive biases and limits of arbitrage). Compare and contrast these pillars with the principles of non-behavioural economics.
[40%]
Question 1. B. Provide two economic examples for each behavioural economics pillar and critically evaluate these examples from both neoclassical economic theory and behavioural economics. Explain how these examples contradict assumptions or predictions of neoclassical economics.
[30%]
Question 1. C. To encourage energy saving by households in a northern region of the UK, a behavioural economist proposes to change existing publicly supported house thermo-insulation program’s slogan from “an average household can save X kWh per year after the insulation” to “avoid losing Y pounds on average per year by using the regional house insulation program”. In addition, the economist proposes to show in all monthly bills the average household energy consumption for houses with insulation, and also to introduce higher energy prices for households with per capita energy consumption above the regional average level. Critically discuss behavioural economics foundations of these proposals.
[30%]
Question 2. A. Critically discuss the closed end fund puzzle, relevant empirical evidence, and non-behavioural explanations of this puzzle.
[30%]
Question 2. B. Critically discuss behavioural economics perspective on the closed end fund puzzle. Explain how empirical evidence supports the behavioural economics perspective.
[40%]
Question 2. C. A behavioural economist proposes to automatically enrol all employees into a voluntary additional pension scheme, which invests pension money into closed end funds, unless an employee wishes to opt out in writing. The economist has developed infographic materials to illustrate possible losses of an employee in case of withdrawal from the voluntary pension scheme. In addition, the economist proposes to partition all closed end funds on high, medium, and low risks and label them by the risk level before employees could choose the funds for individual allocation of the pension money. Critically discuss behavioural economics foundations of these proposals.
[30%]
Overall word limit: 2,500 words maximum.
The word count should include all text, excluding the list of references. Examiners will stop reading once the word limit has been reached, and work beyond this point will not be assessed. Indicate the total number of words in your answer before the list of references. Checks of word counts will be carried out on submitted work.
Rubric:
1. Word count 2500 words maximum, including all tables, diagrams, and footnotes, if any, but excluding the list of references at the end of your answer.
2. As a guide you should write one paragraph of introduction and one paragraph of conclusion for your entire answer. You may indicate relevant sub-sections and sub-headings of the main text of your answer. Your answer for any part A, B, or C should have at least 200 words, which also means that your entire answer should be over 600 words. It is up to you how you wish to split 2500 words maximum content across parts A, B, or C.
3. Use Arial front 12 for your answer. Indicate page number.
4. An abstract, or an executive summary, or a content structure with pages are not required.
5. Clearly structure your answer following your chosen question, use subtitles; indicate such subsections as A, B, or C.
6. It is acceptable to hand draw diagrams to scan them to insert in the electronic copy. The main text should not be hand written. To ensure identical electronic and hard copy submission, you may scan and upload your diagrams in pdf format in one file.
7. All diagrams and tables must carry a reference, either on the literature, or on lecture notes, or the textbook(s).
8. A minimum of 5 references should be provided. Your referencing in the main text and in the list of references should follow Harvard referencing style.
9. An electronic copy must be uploaded into Turnitin on Blackboard in the Assessment section. Notes that Turnitin indicates similarity – this is mandatory precondition for marking. All elements of your answer should be posted through Turnitin in one file. Keep the electronic Turnitin receipt for your record in case of any technical issue.
10. A standard marking guide with grade descriptors for the various classification levels is included for your information.
Assessment criteria
In general terms, the grades are awarded for assessment on the following basis:
Mark Range Criteria
90-100% Indicates that no fault can be found with the work other than very minor errors, for example typographical, or perhaps failure to satisfy the most challenging and exacting demands of the assessment.
80-89% Indicates a very high level of understanding evidenced by an ability to engage critically and analytically with source material. Likely to exhibit independent lines of argument. Only minor errors or omissions.
70-79% Judged to be very good, yet not outstanding. May contain minor errors or omissions. A well-developed response showing clear knowledge and the ability to interpret and/or apply that knowledge.
60-69% Indicates a sound understanding of basic points and principles but with some failure to express or to apply them properly. Hence the answer is essentially correct, has some errors or omissions, and is not seriously flawed.
50-59% Indicates a more limited understanding of basic points and principles, with significant errors and omissions. These errors and omissions, however, do not cast doubt on the basic level of understanding.
40-49% Indicates questionable understanding of basic points and principles yet sufficient to show that learning outcomes have been achieved at a rudimentary level.
30-39% Indicates an answer that shows only weakly developed elements of understanding. The learning outcomes have been insufficiently realised.
20-29% Very little knowledge has been demonstrated and the presentation shows little coherence of material or argument.
0-19% Only isolated or no knowledge displayed.
0% will be awarded if a student hands in work 14 or more actual days after the submission date, or provides answer to unassigned question.