B8901-001: The Psychology and Economics of Consumer Finance Course DescriptionIn this new (Fall 2010) inter-disciplinary course, we will use the tools of behavioral economics and psychology to better understand consumer financial decisions and the consumer finance industry. In their book Nudge, Cass Sunstein and Richard Thaler argue that firms and policymakers can design mechanisms to guide people’s choices in a way that improves outcomes yet maintains freedom of choice. Important new research illustrates how combining insights from psychology and economics can improve our understanding of consumer financial behavior. The recent financial crisis highlighted the importance of this endeavor.
We will examine markets for borrowing (mortgages, credit cards, peer-to-peer lending, payday loans), saving (401(k)s, strategies to promote saving, optimal asset allocation), and insurance (including life, health, and longevity). We will emphasize both how people do and how people should make financial decisions, and the implications for financial services firms. Students will use the tools of traditional economics, behavioral economics, and psychology to develop new and improved financial products, financial markets, and/or financial public policy.
This course should appeal to a wide variety of students: First, there are those who want to work for financial services firms, including asset management, banking, and insurance. Second, there are those who are interested in consulting, investment banking, or private equity, and need to understand and value firms that provide financial services to consumers. Third, those interested in marketing and consumer decisions more generally will find this course’s principles to be helpful. Fourth, it should appeal to anyone interested in broader public policy issues (consumer finance is at the heart of many important public policy debates, including proposals to create a consumer financial protection agency.) Finally, the course will be helpful to anyone interested in learning how to better manage their own personal finances.
The course will include lectures, class discussions, guest speakers, case analysis, small assignments, and student group projects and presentations. It will be highly interactive, and you are expected and encouraged to take part in class discussions. Both professors will participate in all of the classes. We bring different perspectives to these questions (Johnson is a psychologist and a professor in the Marketing division, and Zeldes is an economist and a professor in the Finance and Economics division), and we look forward to some lively debates!