Behavioural Decision Theory


Aims

modeling, avoiding, and exploiting irrationalities in human decision making, and providing tools to convince others of best decisions

Information

Behavioral decision theory incorporates commonly found deviations from rationality in decision models. People are driven by emotions and use simplifying heuristics rather than advanced optimization. Thus we observe excessive risk aversion in overly prudent investments and in the equity premium puzzle. At the same time, risk seeking underlies public lotteries, speculation, entrepreneurial activities, and the absence of sufficient security measures in health and business. People systematically lose money due to inconsistencies in their intertemporal and risky decisions (arbitrage). We analyze these phenomena quantitatively, indicating possibilities to benefit from irrationalities in decisions, or to improve decisions. Applications are given to finance, marketing, management science, health economics, and: your private life. Relative to “Behavioral Foundations,” this course is more advanced, quantitative, and prescriptively oriented. It is nevertheless accessible to students with no maths background.

Assessment

Take-home exercise or experiment; oral exam

Materials

Course notes and articles

Recommended but not required: Kahneman, Daniel (2011) “Thinking: Fast and Slow.”  Penguin Books, London.

Additional info

The material of this course comprises fewer pages than for other courses, but takes more time and requires better understanding per page than for other courses.

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More information and detailed timetables can be found here.

ERIM PhD candidates and Research Master students can register for this course via SIN Online.

External (non-ERIM) participants are welcome to this course. To register, please fill in the registration form and e-mail it to miizuka@rsm.nl by four weeks prior to the start of the course. Please note that the number of places for this course is limited. For external participants, the course fee is 260 euro per ECTS credit.