• Understand what behavioral biases are and how they might induce irrational behavior.
• Identify domains where biases may exist and understand a range of heuristics people use to avoid bad choices.
• Learn how to exploit biases in markets and through interaction with other individuals.
• Describe and discuss important behaviorist theoretical approaches that explain how individuals, markets and other economic entities make choices in real life.
• Understand the tension between traditional economics and finance and behavioral theory, and how they might or might not explain biases.
• Be able to structure a research question on observed behavioral biases.
• Be able to test your own behavioral hypothesis with experimental methods.

What are the challenges of traditional theories in economics?  How can we test hypotheses that challenge mainstream economics? This course will study and compare classical and behavioral economics theories and review the available evidence in favor and against each approach. Furthermore, the course will provide the students with the tools necessary to pose behavioral hypothesis and test it in a controlled economic experiment.
 
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 psychological biases in individual and group decision-making, and examine the impacts of these biases on economic behavior of individuals and other economic entities such as firms and financial markets. The course examines how the insights of behavioral economics challenge traditional theories and how the new behavioral theories have helped improving classical economic theories.
 
Traditional economic theory usually assumes that economic agents are selfish, rational and with unlimited cognitive. However, individuals, firms and markets frequently and systematically exhibit behavior that contradicts standard economics. Behavioral Economics is an interdisciplinary subfield of economics, which incorporates insights from psychological research into standard economic models. Behavioral Economics builds upon these theories and argues that puzzling economic phenomena can be explained by models in which agents may not be fully rational.
 
Experimental Economics, which uses controlled experiments with subjects to study economic behavior, has been an essential tool to uncover empirical regularities in human behavior that contradict predictions from classical economic models. This course will provide the tools to design, implement and analyze data from both economic experiments as well as naturally occurring data in order to test relevant behavioral hypothesis.
 

Most of the material covered during the course will be in the form of research papers and chapters of selected books. Below you will find a list of additional suggested readings that we might also use in the course.

Suggested readings:

Baddeley, M. 2013. Behavioral Economics and Finance (New York: Rutledge).

Camerer, C.F., Loewenstein, G. and Rabin, M. eds. 2003. Advances in Behavioral Economics. Princeton University Press.

Kahneman, Daniel, and Amos Tversky, eds. 2000. Choices, Values and Frames. Cambridge University Press.

Pompian, M.M.  2006. Behavioral Finance and Wealth Management.  Wiley: New Jersey.

Shefrin, H. 2008. A Behavioral Approach to Asset Pricing Theory, Elsevier. Second edition.

Shleifer, A. 2000. Inefficient Capital Markets: An Introduction to Behavioral Finance. Oxford UP. 
Thaler, R. 1993. Advances in Behavioral Finance. Russel Sage Foundation.

Thaler, R. 1994. The Winner's Curse: Paradoxes and Anomalies of Economic Life. Princeton, N. J.: Princeton University Press.