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2024/2025  KAN-CEADV2402U  Irrationality, Economics and Finance: A Behavioral and Experimental Approach

English Title
Irrationality, Economics and Finance: A Behavioral and Experimental Approach

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 35
Study board
Study Board for OECON and ECFI
Course coordinator
  • Luigi Butera - Department of Economics (ECON)
Main academic disciplines
  • Finance
  • Economics
Teaching methods
  • Blended learning
Last updated on 16-01-2024

Relevant links

Learning objectives
Students having sucessfully participated in the course are able to:
  • 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 behavioral 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.
Course prerequisites
1. A good knowledge of microeconomics, statistics, and finance is recommended. Students who do not have good knowledge of these topics but still wish to enroll, should be prepared to invest a bit of time early in the course to catch up.

2. Please send in a 1 page motivational letter arguing why you want to participate and how you would contribute to the course through discussions and presentations, and a 1 page graduate grade transcript to ily.stu@cbs.dk before the registration deadline for elective courses.
Please also remember to sign up through the online registration..
Irrationality, Economics and Finance: A Behavioral and Experimental Approach:
Exam ECTS 7,5
Examination form Home assignment - written product
Individual or group exam Individual exam
Size of written product Max. 10 pages
Assignment type Written assignment
Release of assignment The Assignment is released in Digital Exam (DE) at exam start
Duration Written product to be submitted on specified date and time.
Grading scale 7-point grading scale
Examiner(s) One internal examiner
Exam period Winter
Make-up exam/re-exam
Same examination form as the ordinary exam
Description of the exam procedure

Students will work on an 8-pages report during the whole semester and two additional questions will be posted 7 days in advance of the final deadline to submit the written product and both questions have to be answered in 2 pages, for a total of 10 pages.


Course content, structure and pedagogical approach

Traditional economic theories assume that people's decisions are solely guided by self-interest and full rationality. Do these assumptions accurately describe how people and markets function in the real world? Or do we need to expand our economic toolbox to accommodate for other preferences and psychological factors that influence decisions? This course will study and compare classical and behavioral economics theories and review the available evidence in favor and against each approach. The course will provide students with the necessary tools to understand many and important current policy issues such as public policy and behavioral responses to climate change, socially responsible behaviors, health-related behaviors, investment decisions, as well as managerial decisions and incentive structures within organizations, among others. 


The goal is not only to enable students to become consumers of the literature on behavioral and experimental economics, but also active contributors of original and testable ideas to improve the activities, processes, and organizational architecture of their future workplaces, whether those might be for-profit firms, non-profit organizations, or public institutions. 

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 non-monetary preferences, psychological biases, and decision heuristics in individual and group decision-making that influence economic behavior. Through concrete and life-relevant studies, we will see how we can use Economics to relax the traditional assumptions that economic agents are selfish, rational and have unlimited cognitive abilities. We will see that people are (also) motivated by altruism, social norms, fairness, social image, and self-esteem. We will see that people often fall prey of time and risk inconsistencies (e.g. procrastination, impatience, present bias, naivete about their own inconsistencies, loss aversion), and often have imperfect access to information and to their cognitive processes (e.g. inattention, imperfect recall, psychological and emotional biases). 


A cornerstone of the course are the weekly discussions of relevant behavioral phenomena related to the students' projects, which take the form of substantial personalized and team feedback from the instructor, designed to sharpen the critical thinking skills of students. 
This course will provide the tools to design, implement and analyze data from both experiments as well as naturally occurring data in order to test relevant behavioral hypotheses. Importantly, this course aims at providing students with a hands-on introduction to the tools necessary to apply science-based decision-making at the individual level, within firms, non-profit organizations and public institutions.   


Finally, as concrete benefit to students from taking the course, a significant number of past students have used the final assignment for the course as a starting point for building their master thesis.

Description of the teaching methods
The course has 36 hours of 18 sessions. In some weeks, the class activities will be extended to include experiments, student workshops, student presentations online, and exercises.
Feedback during the teaching period
I provide continuous feedback to students such that they can understand the concepts covered in the course and learn how to apply them both to research projects and real life situations/problems. This continuous feedback is a key cornerstone of the learning process in the course.
Feedback takes the form of discussions of research ideas that students identify themselves according to their interests. This creates student-motivated discussions (in class or online) in which other fellow students and instructors provide valuable feedback to refine and improve research ideas that eventually students have to crystalize in a written research project to be delivered at the end of the semesters.

Instructors also strive to give students additional personalized feedback on research ideas/research project to students in the form of office hours, online synchronous meetings, written feedback and in class discussions. The main idea is to provide students with as much feedback as possible such that at the end of the semester students have a well-refined research idea that they can implement in a research project.
Student workload
Preparation/exam 170 hours
Online classes 36 hours
Expected literature

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.

Last updated on 16-01-2024