20554 - PSYCHOLOGY, ECONOMIC ANALYSIS, AND BEHAVIORAL FINANCE
CLMG - M - IM - MM - AFC - CLEFIN-FINANCE - CLELI - ACME - DES-ESS - EMIT - GIO
Course taught in English
Go to class group/s: 31
The course has two main objectives. The first is to introduce students to the discoveries of the new fields of behavioral economics and finance. The second is to equip students with basic methods for detecting psychology effects using field data on consumer and market behavior. These methods can inform research, policy, and industry work.
We will enrich standard choice models with psychological forces such as limited memory, salience, loss aversion, reference points, emotions, limited self-control. We will then show how these models can improve upon our ability to explain important facts on domains such as: consumer demand, expectation formation, savings and investment decisions, asset prices. The course alternates the analytics of distinct psychological mechanisms with their application to real world data.The roadmap goes roughly as follows:
-Limited memory and representativeness.Applications to expectation formation and stereotypes
- Salience, Reference Points, Loss Aversion. Applications to demand for housing, demand for consumer goods, asset prices.
- Emotions and limited self-control.Applications to savings, retirement, and investment decisions
- Behavioral Finance. Inefficient financial markets, limits to arbitrage, over and under-reaction to news, growth and value stocks, asset bubbles, excess trading, excess volatility, market sentiment, financial crises.
Articles, lecture notes, and other materials posted on the weblearning space.
Basic microeconomics of individual behavior (e.g., expected utility, intertemporal utility, and their maximization).Statistics of linear regression analysis.