DIGITAL LESSON BUNDLE

Implementation Guide for Educators

#1 Introduction to
Behavioral Economics
Objectives Overview
Students will: In contrast to traditional economic theory, behavioral economics
understands the tendency for people to make frequent, irrational
● Compare behavioral
decisions. In these lessons, students will discover the difference
economics and traditional
between how traditional and behavioral economic theories expect
economics.
people to respond. Through a series of scenarios, videos, questions,
● Analyze scenarios in and discussion, this Digital Lesson Bundle (DLB) challenges students
which people fail to to consider how an understanding of behavioral economic theory can
respond rationally to benefit an individual’s life, including their health and finances.
incentives.
● Apply their understanding Futures Spotlight
of behavioral economics Throughout the Econ Essentials digital curriculum, teachers and
to various careers. students will gain insight into various industries, and market
participants, and how they relate to the behavioral economics
concepts they are exploring. One industry that is introduced that may
not be familiar to the students is the futures industry. Students will
explore how concepts discussed in the curriculum such as hedgers,
speculators and price discovery in agriculture and energy relate back
to the futures industry. Through these concepts, students should gain
an understanding of how the industry fits into their lives and into the
broader economy. Students will view a video about futures markets
explaining the difference between types of market participants like
hedgers and speculators. The video will also provide an explanation
of how farmers and ranchers can use futures contracts to manage
their business risk by locking in the price of crops or livestock, thus
protecting themselves from price swings before their product is
ready to come to market. Exchanges like CME Group help businesses
everywhere mitigate the myriad of risks they face in today’s uncertain
global economy.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

Content Areas
Economics; Financial Literacy

Suggested Time
4 sessions: 3 full class periods of approximately 45–50 minutes each and 1 partial class period of
approximately 20 minutes

Note: This lesson may be completed on non-consecutive days, if necessary. Session 4 should take place at
least one week after session 3.

Grade Level
Grades 9 –12

Essential Questions for Students

● What is the difference between behavioral economics and traditional economics?
● Can economists actually predict people’s behaviors?
● Why is predicting the choices people will make helpful?

Materials
All Sessions
● Introduction to Behavioral Economics Implementation Guide
● Computer with projector, television, or interactive board

Session 1
● Introduction to Behavioral Economics PowerPoint Slides 1–12
● 3–2–1 Exit Ticket—one copy per student
(Note: There are two per page. Cut in half in advance.)

Session 2
● Introduction to Behavioral Economics PowerPoint Slides 13–22
● Tape
● Think Like an Economist—one copy per student
● Behavioral Economics Theories—one of each
(Note: Tape around the room before or during
the activity.)

Session 3
● Introduction to Behavioral Economics PowerPoint Slides 23–25
● How Rational Are My Choices? Challenge Activity (available here)—one copy per student

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

Session 4
● Introduction to Behavioral Economics PowerPoint Slides 26

Background
For many years, economists held firm to the idea that—when faced with a decision—people will respond
predictably to incentives. However, there are numerous situations in which people act irrationally, instead.
For example, many people know that consuming too much sugar or not getting enough sleep can be
harmful to a person’s health. Nonetheless, they consume sugar and fail to get enough sleep.
This is where behavioral economics comes into play. Instead of expecting people to make rational
decisions, behavioral economists have identified numerous factors which influence people to make
predictably irrational choices. By examining these factors, individuals, companies, governments and
others can—among other choices—make different decisions about how to consume, produce, and
market goods and services.

Using this Guide

The goal of this guide is to prepare educators to use this digital lesson bundle. It provides slide-by-slide
instructions to ensure educators are prepared to explain, discuss, and facilitate the hands-on content
in the presentation. The presentation is designed to cover three and a half class sessions, but it can be
flexible depending on the students’ needs and the time available. Additional extension ideas are included
at the end of the manuscript.

The accompanying presentation was created with PowerPoint so that it can be used in a variety of
classrooms. If you are displaying the slides on a projector or television, simply progress through the
PowerPoint by clicking to advance. All of the interactive aspects of the presentation are set to occur on
click. This may include images, text boxes, and links which will appear in your web browser. If you are
using an interactive whiteboard, tap on each slide with your finger or stylus to activate the interactive
aspects of the presentation. In the notes for each slide, there will be information on how to proceed.

Students begin this series of lessons by comparing the difference between “human” and “econ” responses
to situations. They consider various scenarios and people’s responses and then learn how each was
influenced by specific concepts from behavioral economics (herding, status quo bias, sunk cost fallacy,
and misconception of randomness). Students apply this knowledge as they consider how factors from
behavioral economics might influence individuals in their careers. Finally, students track their own personal
decisions over the course of a week and reflect on their choices and the factors that influenced them.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

Procedure

Session 1
ENGAGE | Slides 1–7
Overview

You will begin this session by asking students a series of five questions. Students will keep a tally of their
responses as either an H or E as they go along.

Slide 1

● Inform students that you will be posing a series of questions to them—each with two possible
responses.
● Let them know they will need a paper and pen or another method of taking informal notes about
their responses.

Slide 2

● Read the question aloud. Click to show the answer options then allow time for students to review
their choices.
● Direct students to create a table to tally their responses. Instruct them to label one column “H”
and the other E.”
● Show which responses receive the H and E tally mark as noted below.
○ Strength for Amelio = H
○ Healthy Student Lunches = E
● Poll students to see how many responded with each choice (optional).

Slide 3

● Ask a student to read the question aloud then click to show the answer options.
● By clicking again, show which responses receive the H and E tally mark as noted below.
○ Buy the extended warranty = H
○ Skip the extended warranty = E
● Direct students to update their tally marks.
● Ask students with varying responses to share their thoughts.
● Poll students to see how many responded with each choice (optional).

Slide 4

● Pose the question then click to show the answer options. Remind students to answer honestly. If
your students do not drive yet, ask them to answer based on how they expect they would respond
when they do start driving.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

● By clicking again, show which responses receive the H and E tally mark as noted below.
○ Read it = H
○ Ignore it = E
● Direct students to update their tally marks.
● Poll students to see how many responded with each choice (optional).

Slide 5

● Let students know this is the final question and that it likely requires them to think about the
future since in most states you must be 18 to purchase lottery tickets.
● Pose the question then click to show the answer options.
● By clicking again, show which responses receive the H and E tally mark as noted below.
○ Yes = H
○ No = E
● Direct students to update their tally marks.
● Poll students to see how many responded with each choice (optional).

Slide 6

● Direct students to total their H and E responses. Use this time to do the same on your tally of class
responses if you chose to poll after every question.
● Inform students that the H responses are representative of what behavioral economics would call
the “Human” response while E’s are representative of the “Econ” response.
● Ask students to raise their hand if they had 3 or more H responses. Do the same for those with 3
or more E responses.

LEARN | Slides 7–12

Overview

You will continue the lesson by introducing students to the concept of behavioral economics by explaining
how people respond to choices as “humans” or “econs.” Students watch a video that presents the concept
of behavioral economics and contrasts it to traditional economics. You will then revisit the scenarios from
the beginning of the session to consider why various responses represent a human or econ response.
Students work in small groups to sort responses to situations as characterizing humans or econs and
statements as representing behavioral economics or traditional economics.

Slide 7

● Explain what behavioral economists mean when they refer to a “human” response.
● Let students know that people often respond to situations or choice with what is called their
automatic system. When we talk about “going with your gut reaction,” this is your
automatic response.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

● Click to show students the photo of a bacon cheeseburger.

● Ask students if they have ever seen someone eating something and all of a sudden wanted the
same thing. This is an example of an automatic response. You didn’t want the item to begin with,
but you do now that you’ve seen it.
● Share that human responses are often irrational ones.

Slide 8

● Explain that, in contrast to humans, econs act much more rationally. They use what is called their
reflective system, which is controlled, self-aware, slow, effortful, and rule following.
● Ask students how they think someone acting as an “econ” would approach the same bacon
cheeseburger or another desirable food item. Responses might address the following:
○ Is the person already hungry?
○ Do they like the food?
○ Is it healthy or nourishing?
○ Do they have the money to buy that food?
○ What other meals or snacks do they have planned?
Slide 9

● Play video.
● Revisit a selection of the scenarios from slides 2 through 6. Challenge students to explain how
various responses represented either a human or econ response.

Slide 10

● Let students know you are going to do one more activity to help determine if they are humans,
econs, or a mix of each, but this time with a short three question math quiz.
● Direct students to note their answers on a piece of paper or electronic document.
● Click to reveal the questions and give the following instructions: “Here are several problems that
vary in difficulty. Try to answer as many as you can. As soon as you are done, flip over your piece of
paper or close your device.”

Slide 11

● Display the answers given by humans and econs. Ask students which they think are the correct
answers (answer: the econ responses) and why (answer: because people that gave these answers
took their time and completed the entire program rather than giving their gut, incorrect response).
● Inform students that these same questions have been answered by thousands of people and
is called the Cognitive Reflection Test. It was developed by a Yale professor, Shane Frederick.1
Even students at very selective colleges (MIT, Yale, Harvard, and Princeton) frequently miss these
questions.
● Ask students to consider how this “test” supports the idea that behavioral economics might be
more reliable than traditional economic theory. (Answer: With this quiz, many students give the

1
https://pubs.aeaweb.org/doi/pdfplus/10.1257/089533005775196732

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

first, quick, automatic answer. They do not take the time to fully work out the problem (i.e. writing
it down, checking to see if the answer they provide makes sense, etc.). Traditional economic theory
assumes that people would take these steps, but behavioral economics takes into consideration
that people do not approach every decision logically.)
● Challenge students to consider how this test might be adjusted to account for other factors that
behavioral economists consider such as the impact other people can have on an individual’s
decisions. If students struggle to answer, provide the following prompts:
○ Do you think your answers would have been different if:
● I had asked everyone to come to the front of the class and write your answer
on the board?
● You had been given the wrong answer and then asked to say if it was right or wrong?
Slide 12

● Invite students to complete a 3–2–1 Exit Slip. This will help students summarize their learning and
comprehension of the lesson.
● After the lesson, review the students’ 3–2–1 Exit Slips and determine if there are any questions that
need to be addressed in the next session as well as areas of student interest for further study.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

Session 2
APPLY | Slides 13–22
Overview

Students work in small groups to predict how people might respond to situations from two perspectives:
traditional and behavioral economics. Following the activity, students will do a “gallery walk” of various
behavioral economic theories trying to match their situations to the theories. The session concludes with
students considering the advantage of understanding behavioral economics.

Slide 13

● Briefly review the key takeaways from session 1 and take a few moments to address any questions
or misconceptions that were noted in your review of the 3–2–1 Exit Slips.
● Inform students that economists frequently perform experiments to determine how people
respond to a specific situation or choice. Tell students they will be working in small groups and
making predictions about how people would respond in a specific situation or experiment.
● Divide students into small groups of two to three students and distribute a copy of Think Like an
Economist to each student. Determine which groups will consider each scenario. It is okay for
more than one group to examine a given experiment.
● Allow time for students to read and discuss their experiment and make predictions.
● Invite students to pair with another small group to compare their scenarios and predictions.
Encourage students to confirm or supportively challenge the other group on their predictions.
● While students work, hang each of the Behavioral Economics Theories around the room.

Slides 14

● Let students know that each of the Behavioral Economic Theories hung around the room depicts
one or more theories from behavioral economics.
● Invite students to take a “gallery walk” around the room, reading each description. Challenge them
to match the theory to the scenarios from Think Like an Economist and note the theory or theories
in the margins next to each scenario.

Slide 15

● Ask students whose groups had this scenario to share their predictions and a highlight of their
discussion.
● Click to display the behavioral economics theory: herding
● Ask how many students correctly identified the theory for this scenario.
● Click to display the graph. Discuss why people might eat more when additional people are with
them.
● Challenge students to consider how knowing this information might influence someone who is
trying to lose weight.
(Note: Herding is explored in even greater detail in another lesson.)

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

Slide 16
● Share with students how traditional economic theory explains retirement savings. It is assumed
that people will calculate how much money they will need in retirement, how long they expect to
need that money, and then save enough over time to live comfortably when they stop earning a
regular income.
● In reality, many people do not save as often or as much as they feel they should for retirement. In
most cases when presented with the choice to “opt-out” of a retirement plan rather than an “opt-
in” version, more people will end up saving.
● Click to reveal Status Quo Bias as the behavioral economic theory behind this scenario.
● Ask students if any are familiar with Newton’s 1st Law of Physics, in particular, the portion that
says an object at rest will remain at rest. Challenge students to compare the Status Quo Bias and
Newton’s 1st Law.
(Note: The theory of decision paralysis is also at play in this scenario. It will be explored in another
lesson.)

Slide 17
● Ask students whose groups had this scenario to share their predictions and a highlight of their
discussion.
● Click to display the behavioral economics theory: Sunk Costs. Discuss how this theory applies to
the scenario.
● Challenge students to describe a time they have been influenced by sunk costs in the past or a
situation in which sunk costs might influence them in the future.
(Note: The theories of loss aversion and anchoring is also at play in this scenario. Each will be
explored in future lessons.)

Slide 18
● Ask students whose groups had this scenario to share their predictions and a highlight of their
discussion.
● For students unfamiliar with this sports example, explain that this scenario describes what is often
called the “hot-hand theory.” The premise is that a player who has made numerous shots will
continue to do so.
● Share that this has been disproven, however, in a variety of experiments.
● Compare the phenomenon to one with which students may be more familiar—flipping pennies.
Some people have a hard time believing that the odds of a coin landing on tails after landing on
heads three times in a row is still 50% or 1 in 2. The past event doesn’t influence the current one.
● Click to display the behavioral economics theory: Misconception of Randomness. Discuss how this
applies to the scenario.

Slide 19

● Challenge students to create a scenario based on one of the four theories presented.
● Allow time for students to develop and/or write down their scenario.
● Encourage students to share their scenarios while other students offer opinions on how they
predict people will respond.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

Session 3
CONNECT | Slides 20–23
Overview

Students examine three career profiles and discuss how behavioral economics might connect to each.

Slide 20

● Introduce the Behavioral Economics at Work activity. Decide if students will work independently
or in small groups to brainstorm and share this with the class.

Slides 21–23

● Show each video and allow time for students to identify connections.
● Facilitate a discussion about each career and the potential connections to behavioral economics.
The notes below can help guide or add to the conversation.
○ Slide 21: Career and Technical Education Teacher
● The number of jobs available for career and technical education teachers is directly
related to the number of students choosing to take such classes as most career and
technical education courses are often electives.
● Some students may not choose these courses because they are not the “status quo”
(math, English, science, social studies, etc.).
● For many years, there has been a push for more students to pursue college even
when many students graduate with tremendous amounts of debt or choose majors
that limit their job options. Shifts in what is considered the popular choice may
influence if people take these courses.
○ Slide 22: Farmers and Ranchers—Futures Spotlight
● Explain to students that exchanges like the CME Group bring together all kinds of
people from around the world looking to manage their risk. Hedging is one type of
trading that allows market participants to lock in a price now for a commodity at a
later date, ultimately offsetting their price risk.
● Farmers and ranchers come to exchanges to work with something called futures to
hedge their commodity(ies). Hedgers like farmers and ranchers can sell a “futures
contract” on the crops or livestock they want to sell to protect themselves from
unpredictable declines in price before their product is ready to come to market.
In other words, he/she trades futures to drive risk out of his/her business.
● Farmers and ranchers may have a tie to or oversee their family business, which can
lead them to make more decisions based on emotion.
● Students will learn in subsequent Digital Lesson Bundles about the endowment
effect which suggests that people overvalue what they own. In this instance, farmers
and ranchers who produce their own goods may place a high value on their hard
work and as a result may be reluctant to sell at lower prices.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

○ Slide 23: Dietician

● One role of a dietician is helping people to make rational choices about what they eat.
An understanding of behavioral economics could help people do their job better.
● If everyone made rational decisions about their diets and lived healthy lifestyles,
there would likely be less demand for dieticians.

EXTEND | Slide 24
Overview

Students are challenged to track their economic decisions for one week.

Slide 24

● Distribute a copy of How Rational Are My Choices? Challenge Activity to each student.
● Inform students that they will be tracking economic decisions they make over the course of five
days.
● Invite students to record two decisions per day on the Tracking My Decisions capture sheet
(included in the challenge activity).
● Challenge students to consider each decision, identify the factors which influenced each one, and
then record whether or not they believe it was more in line with traditional economic decision
making or behavioral economics.
● Let students know when they will be expected to complete the assignment and discuss their results.

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 LESSON 1: INTRODUCTION TO BEHAVIORAL ECONOMICS

Session 4
EXTEND, cont. | Slide 25
Overview

After tracking their economic decisions for five days, students share and analyze their decisions.

Slide 25

● Invite students to form small groups and share at least two decisions they recorded on their
Tracking My Decisions capture sheet.
● Lead a class discussion about the process of writing down and considering their decisions.
Do they believe thinking about why they made some of these decisions will influence future
choices? Why or why not?

Standards
● Voluntary National Content Standards in Economics from the Council for Economic Education
○ Standard 2—Decision Making (Grade 12 Benchmark 4): Costs that have already been
incurred and benefits that have already been received are sunk and irrelevant for
decisions about the future.
○ Standard 4—Incentives (Grade 12 Benchmark 1): Acting as consumers, producers,
workers, savers, investors, and citizens, people respond to incentives in order to allocate
their scarce resources in ways that provide them the highest possible net benefits.
● National Standards for Personal Financial Education from the Council for Economic Education and
Jump$tart Coalition for Personal Financial Literacy
○ Spending (12.4): Consumers may be influenced by how prices of goods and services are
advertised, and whether prices are fixed or negotiable.
○ Managing Risk (12.12): Extended warranties and service contracts are like an insurance policy.
● National Standards for Family and Consumer Sciences Education from the National Association of
State Administrators of Family and Consumer Sciences
○ Consumer and Family Resources (2.7): Demonstrate the ability to use knowledge and skills
to manage one's financial resources effectively for a lifetime of financial security.
● The College, Career, and Civic Life (C3) Framework for Social Studies State Standards from the
National Council for the Social Studies
○ Economic Decision Making (D2.Eco.1.9 -12): Analyze how incentives influence choices that
may result in policies with a range of costs and benefits for different groups.

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3–2–1 Exit Ticket STUDENT HANDOUT

Name: _________________________________ Date: _______________ Class: ___________

Things I learned today:

3
Things I found interesting:

2
Question I still have:

3–2–1 Exit Ticket

Name: _________________________________ Date: _______________ Class: ___________

Things I learned today:

3
Things I found interesting:

2
Question I still have:

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 STUDENT HANDOUT
Think Like an Economist
Scenarios: Read your assigned scenario.

1. A person goes out to eat with one of their friends. Do you think that person will eat more than usual,
less than usual, or about the same? What if they are in a group of five people? How about nine?

2. For years a company has offered an optional 401(K) retirement program. About 45% of
employees regularly contribute a portion of their earnings. The company changes the program
and now enrolls all employees automatically. Employees can now “opt out” if they don’t want to
participate. After a year, do you think more people are investing, less, or about the same?

3. A family buys $100 in weekend passes to a nearby indoor waterpark. Then—out of the blue—they
win a free package at an even nicer park. BUT—they find out they can only use the passes on the
same weekend. Which park do they go to—the one that cost $100 or the one with free tickets?

4. You are at a basketball game and your favorite player is having a great game. He’s made the last
10 shots he’s attempted. Your friend says he can’t keep it up. He bets you dinner after the game
that the player will miss the next shot. Do you take the bet?

Our Predictions: Predict how each type of economist would expect people to respond.

Traditional Economist Behavioral Economist

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 STUDENT HANDOUT
Behavioral Economics Theories
Teacher: Hang each of the Behavioral Economics Theories around the room.

Misperception of Randomness
People often believe random
events to be non-random and non-
random events to be random
CONSIDER:

• If you flip a coin three times and

get heads each time, are you still
just as likely to get heads as tails
on the next flip?

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 STUDENT HANDOUT
Behavioral Economics Theories
Teacher: Hang each of the Behavioral Economics Theories around the room.

Herding
People often do what others
around them are doing.
CONSIDER:

• Similar to peer pressure, people

can be influenced just by seeing
or hearing others around them—
even if they don’t consciously
realize it.

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 STUDENT HANDOUT
Behavioral Economics Theories
Teacher: Hang each of the Behavioral Economics Theories around the room.

Status Quo Bias

People have a general tendency
to stick with what they know.
CONSIDER:

• Do you usually sit in the same

area of the cafeteria most of the
time or move to a different table
each day?
• If you have been paying for a
movie streaming service and they
increase the rate by a dollar, are
you likely to cancel or keep the
service?

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 STUDENT HANDOUT
Behavioral Economics Theories
Teacher: Hang each of the Behavioral Economics Theories around the room.

Sunk Cost Fallacy

Once people have invested in
something, they have a hard time
giving up on it. In reality, their
commitment to it may even grow.
In economics, a sunk cost is any
past cost that has already been
paid and cannot be recovered.
CONSIDER:

• You go to the movies. You buy

tickets, popcorn, and a drink. After
30 minutes, you can’t stand the
movie. Do you stay or leave?

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