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2014/2015 KAN-CIBSO2001U Psychology and Decision-making in Corporations
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| Psychology and Decision-making in Corporations |
Course information |
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| Language | English |
| Course ECTS | 7.5 ECTS |
| Type | Mandatory |
| Level | Full Degree Master |
| Duration | One Semester |
| Course period | Autumn |
| Timetable | Course schedule will be posted at calendar.cbs.dk |
| Study board |
Study Board for MSc in Economics and Business
Administration
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| Course coordinator | |
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| Last updated on 08-01-2015 | |
| Learning objectives | |||||||||||||||||||||||
| The course extends students
understanding of international business based on what we know about
the psychology of decision-making. The course will advance
students’ understanding of multinational corporations and
international financial markets by recognizing the biases and
errors of judgment to which all of us – as business executives,
advisors and investors – are prone and in doing so strengthen their
ability to analyze and manage complex financial decisions in an
international setting. This will in turn strengthen students’
ability to support and assess decision-making in all types of firms
and organizations. Through various experiments students will
moreover get familiar with their own behavioral profile.
The objective is to acquire a good understanding of the major concepts and issues in behavioral finance. This includes the ability to understand: The inability of modern finance to account for various paradoxes and anomalies. • How people make decisions and where biases may reveal themselves, in particular cognitive limitations and heuristics, overconfidence, and emotions. • Behavioral implications of these biases. • How social forces impact the choices people make. • What behavioral finance can tell us about observed market outcomes. • How psychological biases have the potential to impact the behavior of managers. • Debiasing strategies and the role of nudging. |
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| Course content and structure | |||||||||||||||||||||||
| The purpose of this course is to
enable students to understand how international corporations,
investors and individuals in general make decisions in a complex
and sometimes chaotic world. The course builds on important
advances in behavioral psychology including in behavioral finance
that emphasize how “normal” individuals often behave in ways that
deviates significantly from the assumptions of Homo Economicus.
This leads to a number of biases in decision making in businesses,
including, for example, overconfidence in boom periods, and it has
also important implications for understanding boom-bust cycles in
financial markets and potential deviations from market efficiency.
Because the course is on decision making in corporations and
amongst investors and how this affects markets and vice versa, the
course fits well into the IB Programme that deals mainly with
international business and market issues.
This course briefly outlines the foundations of traditional economics and finance including the inability to account for various paradoxes and anomalies. Expected utility and market efficiency are the first topics to be covered and discussed. Market efficiency in particular will be assessed in an international context. These central theoretical developments have subsequently proved incomplete as individuals’ actual choices violate a number of important assumptions. (Social) Psychology provides a number of interesting alternative explanations that naturally call for scrutiny: Prospect theory, heuristics and biases, overconfidence, and social forces. A central tenet in this approach (and contrary to the efficient market approach) is that mistakes occur frequently, but individuals are to some extent capable of learning from mistakes and adapting their behavior accordingly. This adaptation does not, however, occur independently of market forces but is driven by competition. The internationalization of corporations and financial markets is important in this respect and covered accordingly. The final but very important part of the course describes how psychological biases have the potential to impact the behavior of managers in general and mangers in multinational corporations in particular. 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. Some 'debiasing' strategies will also be covered in order to give participants’ tools they can use going forward in order not to become a more rational decision maker. Teaching method Combination of lectures and experiments. Students are expected to participate in class discussions and equally important in the experiments. The experiments will improve the students’ understanding of central concepts covered in the lectures as well as familiarize them with the own behavioral profile. In-class exercises may be used to train the students’ application of certain concepts. |
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| Teaching methods | |||||||||||||||||||||||
| Combination of lectures and in-class experiments. As a general rule, each lecture has both elements; typically two hours with lectures and discussions and one hour with one or more experiments depending on their complexity. The results of the experiments are presented to and discussed with and amongst the students in the subsequent lecture. In line with good experimental praxis, most experiments will be conducted (one week) before the topic in covered in class. | |||||||||||||||||||||||
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Journal articles
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