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Regular version of the site
2018/2019

Introduction to Behavioral and Experimental Economics

Type: Minor
Delivered by: Department of Finance
When: 3, 4 module
Instructors: Konstantin Kholodilin, Vasilisa A. Makarova, Marina Utevskaya
Language: English
ECTS credits: 5

Course Syllabus

Abstract

This course will cover some major approaches to the study of individual behavior and decision making. It will explore a selection of the most important ideas in behavioral economics, restricting ourselves to models of individual decision making. The course touches upon both experiments and theory. From the experimental side, it includes the most profound observations from the lab and the field, learning basic techniques how to create and evaluate your own experimental data. From the theoretical side, we it covers basic theories that attempt to explain observed biases and learn how to extend the standard financial models to account for behavioral aspects.
Learning Objectives

Learning Objectives

  • To introduce models of behavior alternative to the standard homo oeconomicus approach, building on some insights from experimental economics and psychology.
Expected Learning Outcomes

Expected Learning Outcomes

  • Student knows how to apply bounded rationality models,, the methods of fundamental and technical analysis when planning work in the stock market
  • Student has basic knowledge and skills in a Strategy restrictions in Applications (Auctions, bargaining, information transmission)
  • Student can suggest alternative models that assume lesser sophistication on agents
  • Student has basic techniques how to create and evaluate his own experimental data
Course Contents

Course Contents

  • Topic 1. General overview of standard approach and its introspective vs learning justification
  • Topic 2. Analogy-based expectation equilibrium
  • Topic 3. Valuation equilibrium and equilibrium with imperfect recall. Level k and quantal response equilibrium
  • Topic 4. Choices, Values and Frames
    Rational choice. Psychological motives not included in the standard framework. Modeling Choice Procedures. Individual preferences and social values. Welfare
  • Topic 5. Judgement, beliefs, heuristics and biases
    Representing uncertainty and beliefs via a probability. Heuristic and biases
  • Topic 6. Decision-making under risk and uncertainty
    Expected utility. Non expected utility under risk. Prospect Theory and loss aversion. Ambiguity
  • Topic 7. The treatment of time
    Discounted utility. Issues with discounted utility. Quasi hyperbolic discounting. Time inconsistency and self control. Hyperbolic discounting. Loss aversion
Assessment Elements

Assessment Elements

  • non-blocking Home assignments
  • non-blocking In-class participation
  • non-blocking Final exam
Interim Assessment

Interim Assessment

  • Interim assessment (4 module)
    0.5 * Final exam + 0.3 * Home assignments + 0.2 * In-class participation
Bibliography

Bibliography

Recommended Core Bibliography

  • Gilboa,Itzhak. (2009). Theory of Decision under Uncertainty. Cambridge University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.cup.cbooks.9780521517324
  • John H. Kagel, & Alvin E. Roth. (2016). The Handbook of Experimental Economics, Volume 2. Princeton University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.pup.pbooks.10874
  • Mas-Colell, A., Whinston, M. D., & Green, J. R. (1995). Microeconomic Theory. Oxford University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.oxp.obooks.9780195102680
  • Redhead, K. (2008). Personal Finance and Investments : A Behavioural Finance Perspective. London: Routledge. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=237524
  • Wakker, P. P. (2010). Prospect Theory : For Risk and Ambiguity. Cambridge, UK: Cambridge University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=324116

Recommended Additional Bibliography

  • Faruk Gul, & Wolfgang Pesendorfer. (2005). A Simple Theory of Temptation and Self-Control. Levine’s Bibliography. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cla.levrem.784828000000000121
  • Gilboa, I., & Schmeidler, D. (2001). A Theory of Case-Based Decisions. Cambridge: Cambridge University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=72982
  • Jehiel, P., & Samet, D. (2007). Valuation equilibrium. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.EE654F31
  • Nagel, R. (1995). Unraveling in Guessing Games: An Experimental Study. American Economic Review, (5), 1313. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.aea.aecrev.v85y1995i5p1313.26
  • Osborne, M.-J., & Rubinstein, A. (1997). Games with Procedurally Rational Players. Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.fth.teavfo.4.97
  • Philippe Jehiel, & Frédéric Koessler. (2008). Revisiting Games of Incomplete Information with Analogy-Based Expectations. Post-Print. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.hal.journl.halshs.00754297
  • Philippe Jehiel. (2005). Analogy-based Expectation Equilibrium. Post-Print. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.hal.journl.halshs.00754070