Ir­ra­tion­al­ity, Eco­nom­ics and Fin­ance: A Be­ha­vi­or­al and Ex­per­i­ment­al Ap­proach

Course content

Traditional economic theories assume that people's decisions are solely guided by self-interest and full rationality. Do these assumptions accurately describe how people and markets function in the real world? Or do we need to expand our economic toolbox to accommodate for other preferences and psychological factors that influence decisions? This course will study and compare classical and behavioral economics theories and review the available evidence in favor and against each approach. The course will provide students with the necessary tools to understand many and important current policy issues such as public policy and behavioral responses to climate change, socially responsible behaviors, health-related behaviors, investment decisions, as well as managerial decisions and incentive structures within organizations, among others. 

The goal is not only to enable students to become consumers of the literature on behavioral and experimental economics, but also active contributors of original and testable ideas to improve the activities, processes, and organizational architecture of their future workplaces, whether those might be for-profit firms, non-profit organizations, or public institutions. 

  
This course describes how individuals and other decision units (e.g., firms) make economic and financial decisions, and how those decisions might deviate from those predicted by traditional economic theory.  Students will explore the existence of non-monetary preferences, psychological biases, and decision heuristics in individual and group decision-making that influence economic behavior. Through concrete and life-relevant studies, we will see how we can use Economics to relax the traditional assumptions that economic agents are selfish, rational and have unlimited cognitive abilities. We will see that people are (also) motivated by altruism, social norms, fairness, social image, and self-esteem. We will see that people often fall prey of time and risk inconsistencies (e.g. procrastination, impatience, present bias, naivete about their own inconsistencies, loss aversion), and often have imperfect access to information and to their cognitive processes (e.g. inattention, imperfect recall, psychological and emotional biases). 

A cornerstone of the course are the weekly discussions of relevant behavioral phenomena related to the students' projects, which take the form of substantial personalized and team feedback from the instructor, designed to sharpen the critical thinking skills of students. 
  
This course will provide the tools to design, implement and analyze data from both experiments as well as naturally occurring data in order to test relevant behavioral hypotheses. Importantly, this course aims at providing students with a hands-on introduction to the tools necessary to apply science-based decision-making at the individual level, within firms, non-profit organizations and public institutions.   

Finally, as concrete benefit to students from taking the course, a significant number of past students have used the final assignment for the course as a starting point for building their master thesis.