UNCERTAINTY ECONOMICS AND BEHAVIORAL FINANCE
UNCERTAINTY ECONOMICS AND BEHAVIORAL FINANCE
Daniela Teresa Di Cagno
Daniela Teresa Di Cagno
ddicagno@luiss.it
Instructional goals
Aim of the course is furnish the basic tools of mainstream and behavioral economics to analyze problems of individual and strategic decision making, under uncertainty and under incomplete and imperfect information, with particular focus on financial markets.
Intended learning outcomes
KNOWLEDGE AND UNDERSTANDING: The student will be able to analyze and understand the main phenomena described and analyzed during the course, in relation to the behavior of individual economic agents and the economic mechanisms of exchange.
APPLYING KNOWLEDGE AND UNDERSTANDING: At the end of the course, the student must be able to use the tools of theoretical analysis for an advanced understanding of uncertainty and information phenomena.
MAKING JUDGEMENTS: The student will acquire the ability to judge in an autonomous way the individual decision making in relation to specific applications of uncertainty and information.
COMMUNICATION SKILLS: The student will acquire the specific language of microeconomics of uncertainty and information in order to communicate precisely the concepts learned.
LEARNING SKILLS: The student will learn the methodology of analysis of the main problems related to the discussed issues.
Course Contents
Individual decision making under static and dynamic uncertainty; strategic uncertainty in mainstream and behavioral game theory. Market decision making: when to sell and to buy under different market institutions. price and belief formation mechanisms. Efficient market hypothesis, market microstructure and behavioral finance.
Contract theory. Financial negotiations under asymmetric information problems (moral hazard, adverse selection, signalling). Positive and normative analysis.
Reference Books
Lecture notes and material supplied by the instructor (presentations and articles available on the webpage).
Selected topics from:
Paiardini P., Microstruttura dei mercati finanziari, Giappichelli, 2020.
R. Gibbons, Teoria dei giochi, il Mulino, ultima edizione.
Colin F. Camerer.
Behavioral Game Theory: Experiments in Strategic Interaction,
2003.
Charles Holt, Markets, Games and Strategic Behavior: An Introduction to Experimental Economics, 2nd edition, 2020
A. Shleifer, Inefficient Markets- An Introduction to Behavioral Finance, Oxford University Press, 2000.
Contract theory
Macho-Stadler I. and D. Perez-Castrillo, Introduction to Economics of Information, Oxford University Press.
Teaching Methods
Lectures, practice classes and group presentations.
Assessment Method
Written exam.
Thesis assignment criteria
Passed the exam.
Week 1
Introduction to Behavioural economics and finance economics
Week 2
Choice under uncertainty neoclassical theory and alternatives grounded on empirical evidence
Applications to financial markets
Financial implications and elicitation of risk propensity elicitation
How to search
Week 3
Simple euristics for complex choice: mental accounting and framing
Bias
Financial markets Applications
Week 4
Choosing when to act: theories, behaviours and expectations on others’ behaviour
Trust and reciprocity
Week 5
Week 6
Demand, supply and markets
EHM
Market microstrure model s
Week 7
Il commitment e le possibili tipologie di agenti
The role of emotions
Social preferences
Week 8
Choice under uncertainty: theories and experiments
Some applications to financial markets
Learning and nudging
Week 9
Interacting with others: Game theory and its behavioral violations
Some applications
Week 10
Asymmetric information: Moral Hazard and adverse selection
Incomplete and asymmetric information and empirical applications
Alcune applicazioni all’onestà e ai vantaggi di mentire.
Herdings
Week 11
Students’ presentations
Week 12
Learning from new information: learning the failures of Bayesian updating. Bounded rationality.
Applicazioni alla finanza