Economics: Behavioural Economics and Finance

<p>Behavioural economics examines the psychological processes driving economic decisions. In this course, we will confront standard models with empirical evidence and discuss alternative behavioural models that can better explain empirical regularities in both economics and finance.</p><p>Standard economic theory assumes that people make well-informed and rational decisions. Yet empirical evidence suggests that these assumptions do not describe the real world very well. </p><p>Most humans are overconfident and rely on simple decision rules rather than rational optimisation, leading to mistakes that may have large consequences. What you will see in this course is that many of these mistakes are predictable and repeatable. This allows us to build alternative models incorporating these mistakes, which is useful both to understand mistakes we may make ourselves (e.g., by not investing in the stock market) and the mistakes made by others. </p><p>If you are a curious students who is eager to learn more about how economic decision making really works in practice, this course is for you.</p><p>You will get brief refreshers on standard theories of economic decisions, such as expected utility theory and then discuss the various predictable ways in which people tend to violate these theories. </p><p>As a final step, you will encounter and discuss alternative models developed by behavioural economists that can explain these violations. In so doing, we cover classic behavioural economic theories such as mental accounting, heuristics and biases, prospect theory, and present bias. You will also learn about more modern alternative theories such as salience theory, cognitive uncertainty and nudging.</p>