Behavioural Decision Theory


Aims

Modeling, avoiding/exploiting irrationalities in human decision making; providing tools to nudge or convince others of best decision

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, to nudge or 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.

Kahneman, Daniel (2011) “Thinking: Fast and Slow.” Penguin Books, London.

Thaler, Richard H. & Cass R. Sunstein (2008) “Nudge: Improving Decisions about Health, Wealth, and Happiness.”

Additional info

The timetable for this course can be found in the EUR course guide.

ERIM PhD candidates and Research Master students can register for this course via Osiris Student.

External (non-ERIM) participants are welcome to this course. To register, please fill in the registration form and e-mail it to the ERIM Doctoral Office by four weeks prior to the start of the course. For external participants, the course fee is 260 euro per ECTS credit.