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  4. Behavioral Economics and Finance

Behavioral Economics and Finance

Objectives

A. Explain how behavioral economic concepts (like the endowment effect, reference dependence, loss aversion, overconfidence, stereotypes, other-regarding preferences, and lying aversion) impact economic decision-making.

B. Understand how economic experiments can be designed, which assumptions they require, which limitations they have, and how they can be used to identify causal effects and inform about human behavior.

C. Identify situations where the concepts from behavioral economics and behavioral finance can be used to design economic policy and explain why these policies might be a preferable to more traditional approaches

General characterization

Code

2193

Credits

3.5

Responsible teacher

Robert Stueber

Hours

Weekly - Available soon

Total - Available soon

Teaching language

English

Prerequisites

n/a

Bibliography

There are no texts that you need to read before the start of the course. The required readings will be based on journal articles, case studies, and book chapters. All required texts will be provided during the course. Lecture notes will also be provided. 


Teaching method

The course relies on a combination of (i) lectures, (ii) in-class discussions, and (iii) economic experiments. First, lectures are used to impart the foundational models in behavioral economics and present evidence of their support. Second, the merits of these models and the validity of the empirical evidence supporting them will be discussed during in-class discussions in which students are expected to participate. Third, to gain hands-on experience with the behavioral mechanisms at play, students will participate in economic experiments conducted during class time. 


Evaluation method

The grading will be announced in class. 


 


Subject matter

This course introduces students to the fields of behavioral economics and behavioral finance, which seek to combine standard economic thinking with more psychologically-plausible assumptions about human behavior. This is accomplished by making nonstandard assumptions about human preferences, exploring nonstandard beliefs, and emphasizing the limitations of our decision-making faculties. Using these more-realistic models, the fields aim at making more accurate predictions about individual behavior and being able to give more effective advice for policies of governments.

The topics covered in this course are approached by examining evidence that is not easily explained by the canonical economic model and then asking how and why behavior can be better explained by making specific deviations from the standard rationality assumptions. Specific policy interventions that can be used to help people make better decisions will also be discussed. The topics covered include, but are not restricted to, choice under risk and uncertainty, overconfidence and competitiveness, beliefs, and moral behavior and social norms. More specifically, the preliminary course outline is as follows:

Introduction to Behavioral Economics

Choice under Risk and Uncertainty

Overconfidence and Competitiveness

Beliefs

Social Preferences

Elective topic(s