BEHAVIORAL FINANCE

Lecture 1: Introduction

Lecture 2: Biases

Lecture 3: Time Preferences

Lecture 4: Risk Preferences

Lecture 5: Nudges

Lecture 6: Financial Literacy

Lecture 7: Gender

Lecture 8: Poverty

Modes of Assessment 

Exam 100%

*Required readings

Lecture 1: Introduction

Topics: homo economicus, behavioral development economics, behavioral finance

*Laibson, D., & List, J. A. (2015). Principles of (behavioral) economics. American Economic Review, 105(5), 385-390. [Read all of it!]

*Kremer, M., Rao, G., & Schilbach, F. (2019). Behavioral development economics. In Handbook of Behavioral Economics: Applications and Foundations 1 (Vol. 2, pp. 345-458). North-Holland. [Section 1 and Section 2.1].

*Burton, E. T., & Shah, S. N. (2013). Behavioral finance: understanding the social, cognitive, and economic debates. John Wiley & Sons. [Part 1]

*Angner, E. (2019). We’re all behavioral economists now. Journal of Economic Methodology, 26(3), 195-207. [Focus on Introduction]

Malmendier, U. (2021). Experience effects in finance: Foundations, applications, and future directions. Review of Finance, 25(5), 1339-1363.

Varian, H. (2010) Intermediate Microeconomics: A Modern Approach, Edition 8, W. W. Norton & Company. [Chapter 12]

Lecture 2: Biases

Topics: cognitive biases and heuristics; replications – Case Study: payday loans

*Kahneman, D. (2012) Thinking, Fast and Slow, Penguin Books. [Part 2 Heuristics and Biases].

*Bertrand, M., & Morse, A. (2011). Information disclosure, cognitive biases, and payday borrowing. The Journal of Finance, 66(6), 1865-1893. [Read all of it].

*Burton, E. T., & Shah, S. N. (2013). Behavioral finance: understanding the social, cognitive, and economic debates. John Wiley & Sons. [Part 1]

*Wang, J., & Burke, K. (2022). The effects of disclosure and enforcement on payday lending in Texas. Journal of Financial Economics, 145(2), 489-507. [Read all of it].

Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases: Biases in judgments reveal some heuristics of thinking under uncertainty. Science, 185(4157), 1124-1131.

Tversky, A. and Kahneman, D. (1981) The framing of decisions and the psychology of choice, Science, 211, 453-458.

Lecture 3: Time Preferences

Topics: time inconsistency, present bias – Case Study: commitment savings

*Kremer, M., Rao, G., & Schilbach, F. (2019). Behavioral development economics. In Handbook of Behavioral Economics: Applications and Foundations 1 (Vol. 2, pp. 345-458). North-Holland.  [Sections 2.2].

*Ashraf, N., Karlan, D., & Yin, W. (2006). Tying Odysseus to the mast: Evidence from a commitment savings product in the Philippines. The Quarterly Journal of Economics, 121(2), 635-672.

Laibson, D. (1997). Golden eggs and hyperbolic discounting. The Quarterly Journal of Economics, 112(2), 443-478.

O’Donoghue, T., & Rabin, M. (1999). Doing it now or later. American economic review, 89(1), 103-124.

Varian, H. (2010) Intermediate Microeconomics: A Modern Approach, Edition 8, W. W. Norton & Company. [Chapter 10].

Lecture 4: Risk Preferences

Topics: prospect theory, loss aversion, endowment effects – Case Study: loss aversion and the housing market

*Kahneman, D. (2012) Thinking, Fast and Slow, Penguin Books. [Part IV Choices].

*Kremer, M., Rao, G., Schilbach, F. (2019) Behavioral Development Economics, in Bernheim B.D., DellaVigna S., Laibson D. (eds.), Handbook of Behavioral Economics – Foundations and Applications, 2, 346-393. [Sections 2.3].

*Burton, E. T., & Shah, S. N. (2013). Behavioral finance: understanding the social, cognitive, and economic debates. John Wiley & Sons. [Part 3]

*Genesove, D., & Mayer, C. (2001). Loss aversion and seller behavior: Evidence from the housing market. The quarterly journal of economics, 116(4), 1233-1260.

Kahneman, D. and Tversky, A. (1979) Prospect Theory: An Analysis of Decision under Risk, Econometrica, 47(2), 263-291.

Varian, H. (2010) Intermediate Microeconomics: A Modern Approach, Edition 8, W. W. Norton & Company. [Chapter 12]

Lecture 5: Nudges

Topics: nudges, ethics, effect sizes – Case Studies:  plastic bags, saving for retirement

*Thaler, R.H. and Sunstein, C.R. (2008) Nudge – Improving Decisions About Health, Wealth and Happiness, Yale University Press. [Introduction, Part I and Chapter 17].

*Homonoff, T. A. (2018). Can small incentives have large effects? The impact of taxes versus bonuses on disposable bag use. American Economic Journal: Economic Policy, 10(4), 177-210.

*Choi, J. J., Laibson, D., Cammarota, J., Lombardo, R., & Beshears, J. (2024). Smaller than We Thought? The Effect of Automatic Savings Policies (No. w32828). National Bureau of Economic Research.

Lades, L. K., & Delaney, L. (2022). Nudge For Good. Behavioral Public Policy, 6(1), 75-94.

Mertens, S., Herberz, M., Hahnel, U. J., & Brosch, T. (2022). The effectiveness of nudging: A meta-analysis of choice architecture interventions across behavioral domains. Proceedings of the National Academy of Sciences, 119(1), e2107346118.

Lecture 6: Financial Literacy

Topics: financial literacy, financial education – Case Study: aspirations and decisions

*Carpena, F., Cole, S., Shapiro, J., & Zia, B. (2019). The ABCs of financial education: Experimental evidence on attitudes, behavior, and cognitive biases. Management Science, 65(1), 346-369.

*McKenzie, D., Mohpal, A., & Yang, D. (2022). Aspirations and financial decisions: Experimental evidence from the Philippines. Journal of Development Economics, 156, 102846.

*Kaiser, T., & Menkhoff, L. (2017). Does financial education impact financial literacy and financial behavior, and if so, when?. The World Bank Economic Review, 31(3), 611-630.

Lecture 7: Gender

Topics: gender differences in economic preferences, access to finance and gender

*Van Veldhuizen, R. (2022). Gender Differences in Tournament Choices: Risk Preferences, Overconfidence, or Competitiveness?, Journal of the European Economic Association, 20(4), 1595–1618.

*Gneezy, U, Leonard, K.L., and List, J.A. (2009) Gender Differences in Competition: Evidence from a Matrilineal and a Patriarchal Society, Econometrica, 77(5),1637-1664.

*Ewens, M. (2023). Gender and race in entrepreneurial finance. In Handbook of the Economics of Corporate Finance (Vol. 1, No. 1, pp. 239-296). North-Holland.

Lecture 8: Poverty

Topics: poverty and making decisions, cognition, preference stability and poverty

*Mani, A., Mullainathan, S., Shafir, E., and Zhao, J. (2013) Poverty Impedes Cognitive Function, Science,341(6149), 976-980.

*Carvalho, L. S., Meier, S. and Wang, S. W. (2016) Poverty and Economic Decision-Making: Evidence from Changes in Financial Resources at Payday, The American Economic Review, 106(2), 260–284.

*Kaur, S., Mullainathan, S., Oh, S., & Schilbach, F. (2021). Do financial concerns make workers less productive? (No. w28338). National Bureau of Economic Research.