Course 2025-2026 a.y.

The course will start by presenting Kahneman and Tversky's prospect theory, with the goal of training students in the core anomalies of reference dependence, loss aversion, probability weighting and diminishing sensitivity.   We will next illustrate how these anomalies help understand specific instances of consumer and investor behavior.  In the second part of the the course we will present cognitive foundations of these forces, based on salience driven attention and memory.  This analysis will lead to new predictions and insights that we will use to study consumer choice and competitive advertising.  The third part of the course will introduce time inconsistency and study its implications to procrasination, addiction and insufficient saving.  We will also study social preferences and altruism.  This part will enable students to be up to date with leading psychological forces in decision making. 

The second half of the course will instead present biases in probabilistic judgments and expectation formation.  We will start with the early empirical anomalies documented in the laboratory and in the field, especially in financial markets such as the representativeness, availability and anchoring heuristics.  We will then study cognitive theory based on selective memory explaining these anomalies and allowing to build a theory of non-rational expectation formation.  This theory will be used to study discrimination in labor markets, the persistence of errneous beliefs in politics, and expectations in macro finance. This will open a behavioral finance module, in which we will engage in an in depth empiricl and theoretical analysis of the importance of non.rational expectations for explaining financial market volatility.     

List key behavioral anomalies for understanding consumer and investor behavior. 

Describe cognitive foundations for such anomalies, rooted in selective attention and memory.

Operationalize these cognitive foundations in terms of theory and measurement, in a way that can be applied to field contexts.

Use these theory and measurement to aanalyze and predict the behavior of consumers, voters, investors, firms, of financial markets, and to design more effective public policies. 

Identify the role of individual decisions in the problem at hand (e.g. investors' choices for a trader, consumer choices for a seller, citizens choice for a policy designer)

Hypothesize the role of specific cognitive forces driving individual behavior in the relevant domain.

Circumscribe the kind of data (measured attention, expectations, etc) needed to collect, together with final choices, in order to dissect cognitive forces in the field.

Develop a reserahc strategy centered on formal models and econometric test to estimate the importance of cognitive forces and to use them for predicting individual and market outcomes. 

• Lectures
• Guest speaker's talks (in class or in distance)

The syllabus consistent of scientific articles. It will be communicated/posted online in late August.