B8744-001: The Psychology and Economics of Consumer Finance
Block Week 1: Jan 13-17 - 09:00AM to 05:00PM
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Business schools all teach multiple courses in Corporate Finance. Until recently none taught Consumer Finance. Yet Consumer Finance is a much larger segment of the economy. In the U.S. as of 2013, households hold $88 trillion in assets, and $14 trillion in liabilities. Corporations have less than half the assets, and less than 2/3 of the debt.
This course provides a remedy to the imbalance.
The course will be inter-disciplinary -- 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. We will bring different perspectives to every topic:
o What is the economic theory describing how people behave?
o What does psychology and behavioral economics contribute to understanding behavior?
o What are the facts about how consumers actually behave? What are the existing markets, institutions, firms, and regulations, both in the U.S. and abroad?
o What are the opportunities for and barriers to innovating in these markets?
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.
We will use the tools of traditional economics, behavioral economics, and psychology to better understand consumer financial decisions, current and possible future financial products, the consumer finance industry, and financial public policy. Important new research illustrates how combining insights from psychology and economics can improve our understanding of consumer financial behavior. In their book Nudge, for example, 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. The aftermath of the financial crisis and continuing debate about consumer financial protection will keep the class lively and yield lots of class content that is “torn from the headlines.”