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ECOM038 - Behavioural Finance

The course will emphasize four main issues. First, we will focus on the explicit and implicit assumptions of the mainstream approach to modelling decision making. Second, we will cover important phenomena that constitute violations/puzzles from the point of view of the mainstream approach. A large emphasis will be placed on puzzles related to important financial decisions by individuals (such as how much to save for retirement) and to the functioning of financial markets. Third, we will discuss various theories from Behavioural Economics that aim to explain the violations/puzzles. We will emphasize how exactly the behavioural theories deviate from the mainstream assumptions. Fourth, where applicable, we will discuss the following question: If decision makers are less than perfectly “rational,” can we design policies that help individuals make better decisions, especially better financial decisions.

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