2014/2015  KAN-CFILO2002U  Behavioural Economics

English Title

Behavioural Economics

Course information
Language	English
Course ECTS	7.5 ECTS
Type	Mandatory
Level	Full Degree Master
Duration	One Quarter
Course period	Third Quarter
Timetable	Course schedule will be posted at calendar.cbs.dk
Study board	Study Board for BSc/MSc in Business Administration and Philosophy, MSc
Course coordinator
Thomas Poulsen - Department of International Economics and Management (INT)
Main academic disciplines
Business psychology Business Ethics, value based management and CSR Economic and organizational sociology
Last updated on 28-08-2014

Learning objectives

Learning objectives This course provides students with a critical view on financial economics – standard models and assumptions including of course the idea of rational markets – based on what we know about personal and market behavior; it is an introduction to a critique that takes as its premise that financial decision-making and investor behavior are not necessarily driven by rational considerations but by aspects of personal and market psychology. to advance students’ understanding of financial markets by recognizing the biases and errors of judgment to which all of us are prone strengthen the students ability to analyze and manage complex financial decisions strengthen students’ ability to support or assess financial and managerial decision-making in all types of firms and organizations Through various exercises and experiments students will moreover get familiar with their own behavioral profile.

Examination

Behavioural Economics: Exam ECTS 7,5 Examination form Home assignment - written product Individual or group exam Individual Size of written product Max. 10 pages Assignment type Written assignment Duration 48 hours to prepare Grading scale 7-step scale Examiner(s) One internal examiner Exam period April Make-up exam/re-exam Same examination form as the ordinary exam

Course content and structure

Purpose The purpose of this course is to enable students to understand economic theories of the market in general and financial markets in particular on their own terms while at the same time identifying more philosophical themes related to for example rationality, efficiency, value and pricing inherent in these theories.   This double understanding of markets should enable students not only to reflect critically about mainstream economic theory but also articulate this critique on the terms of economic theory itself. In the wider context of the CM(fil.) master, the idea of this course is to activate philosophical thinking from inside economics rather than the other way around.

Teaching methods

Structure This course begins by reviewing the foundations of modern finance – to make sense of how psychology impacts individuals and markets it is necessary to take this step back –, its inability to account for various paradoxes and anomalies, and the genesis of behavioral finance. Expected utility and market efficiency are the first topics to be covered and discussed. Philosophical themes covered in this part include rationality, utilitarism (ethics), and empiricism (epistemology). These central theoretical developments have subsequently proved incomplete as individuals’ actual choices violate a number of important assumptions. For example, the assumption of risk aversion proved to be poorly grounded in actual behavior as did market efficiency and the capital assets pricing model. (Social) Psychology provided a number of interesting alternative explanations that naturally call for philosophical scrutiny: Prospect theory, heuristics and biases, overconfidence, and social forces. Philosophical themes include power, emotions and nudging (paternalism). The final part of the course describes how psychological biases have the potential to impact the behavior of managers. Both the abilities of rational managers to take action when markets are believed to reflect irrationality and the possibility that managers are themselves the source of bias are addressed. Here, the philosophical purpose is to abstract what is valid from all realms. Some 'debiasing' strategies will also be covered.

Expected literature

·         Behavioral Finance (Psychology, Decision-Making, and Markets), 1st edition, 2010. Lucy F. Ackert and Richard Deaves. South-Western, Cengage Learning. ·         A selection of topical papers.