• Explain and employ the terms, tools and concepts used in behavioral economics and finance.
• Demonstrate an understanding of the philosophy and the principles underlying the field of bounded rationality and behavioral economics.
• Discuss the behavioral biases covered in the course with regard to their choice architecture, current state of research and practical relevance.
• Understand and apply the basic principles of economic experiments.
• Critically reflect on their own personality traits, bounded rationality and proneness to behavioral biases.
• Identify and analyse specific ways in which they can improve choice architecture to improve their own and others' financial decision-making.

Course content:

In this course, we will examine how investors - and you - predictably and repeatedly make mistakes in financial decision-making. Using insights from psychology, neurosciences and experimental economics, developed by Nobel laureates like Daniel Kahneman, Richard Thaler and Vernon Smith, we will explore the origins as well as the consequences of such deviations from rational decision-making. 
 
By participating in several interactive mini-experiments, students will have the chance to experience their own proneness to behavioral biases and to reflect on their own (bounded) rationality and personality traits. 
 
As a theoretical foundation, we will cover economic theories of decision making under risk and discuss experimental research on several behavioral biases. We will consider how predictions of economic behavior differ when simplifying assumptions in economic models are replaced with psychologically more realistic assumptions based on empirical observations from the lab and from the field. 
 
Applying theory to practice, we will consider how understanding the functioning of the human mind may allow us to design a better world – in particular, in the field of finance (e.g. better stock markets, retirement and healthcare systems, financial consulting etc.)

Course structure:

Preliminary assignment: Please read the below readings and watch the video clips for the first week [see expected literature]. Reflect on what is meant by behavioral economics / behavioral finance and in which ways it corresponds to, contradicts or complements traditional economics / finance.  How rational are you in your financial decision-making, on a scale ranging from 0 - Homer Simpson to 10 - Mr. Spock? Are you stable in your (ir)rationality, or does it depend on identifiable factors and circumstances? Which ones? What do you think of nudging as a tool to improve financial decision-making? Come to class prepared to discuss these issues. 
 
Class 1: Introduction: Bounded rationality in finance and beyond 
Class 2: Economic experiments 
Class 3: Foundations I: Homo economicus and Expected Utility Theory 
Class 4: Foundations II: Homo sapiens and Prospect Theory 
Class 5: Measuring and reflecting on personality traits 
Class 6: Behavioral biases in finance I 
 
Feedback activity: 
 
Class 7: Behavioral biases in finance II 
Class 8: Financial markets, anomalies and market efficiency 
Class 9: Applying behavioral insights to improve financial decision-making I 
Class 10: Applying behavioral insights to improve financial decision-making II 
Class 11: Wrap up, discussion of mini-projects 

Preliminary Assignment: To help students get maximum value from ISUP courses, instructors provide a reading or a small number of readings or video clips to be read or viewed before the start of classes with a related task scheduled for class 1 in order to 'jump-start' the learning process.

Course timetable is/will be available on https://www.cbs.dk/uddannelse/international-summer-university-programme-isup/courses-and-exams

We reserve the right to cancel the course if we do not get enough applications. This will be communicated on https://www.cbs.dk/uddannelse/international-summer-university-programme-isup/courses-and-exams in  March 2021.

Mandatory readings:

For the preliminary assignment: 
• Thaler, R. H., Sunstein, C. R. (2009): Nudge: Improving Decisions About Health, Wealth and Happiness, Penguin. 
• Video clip: Dan Ariely - Are we in control of our own decisions? Link: https:/​/​www.youtube.com/​watch?v=9X68dm92HVI 
• Video clip: Daniel Kahneman - Why We Make Bad Decisions About Money (And What We Can Do About It), Link: https:/​/​www.youtube.com/​watch?v=Kpev-Lb0EAg 
• Video clip: Richard Thaler - The Behavioralizing of Economics, Link: https:/​/​www.youtube.com/​watch?v=D9Uk-YsjQsI 
 
For the course: 
• Ackert, L. F., Deaves R. (2010): Behavioral Finance: Psychology, Decision-Making and Markets, Cengage Learning. 
• Kahneman, D., (2012): Thinking, Fast and Slow, Penguin. 

Additional relevant readings:

will be provided online