Psychology & Economics: Applications in Leadership, Entrepreneurship, and Finance - (E-m) - Q3

Participation Prerequisites

There are no formal prerequisites. Knowledge of basic statistics/econometrics (in particular, regression analysis), data analysis, and finance and economics are a plus.

Course Content

In Psychology and Economics, we discuss the relevance of emotions, culture and  experiences for economic decision-making.

·     We start our discussion by revisiting neoclassical and behavioral economics and introducing the concept of emotions and emotional finance.

·     Psychological theories, especially development psychology, are fundamental building blocks for understanding human perception and decision-making. We give a comprehensive overview of the most important theories.

·     In the following, we study how psychological traits impact financial and economic decision-making. Specifically, we investigate the relevance of personality, identity, trust, and leadership on the personal level as well as culture, gender, religiosity, socialism and populism on the group level.

·     Finally, we study herding in capital markets and with that loss aversion, risk aversion, and risk perception. We analyze how these concepts are related to emotions and might result in exuberance, panics, and financial crises.

The lectures combine presentations, including by students, and, with a particular emphasis,group discussions on the aforementioned timely topics like trust, gender, and populism.

As an essential part of the course, students engage with academic literature at the intersection of psychology and economics. In small groups, they choose between working on either a paper replication, or a literature review. For both, paper replication and literature review, we provide a list of papers students can select from. Each group does two presentations: an initial one on the chosen paper’s methodology, results, and contribution, as well as a final one on either the paper replication, or the literature review.

The paper replication is based on the German Socio-Economic Panel (SOEP), which is a comprehensive panel dataset of German households. The SOEP contains in-depth information on individuals’ attitudes, values, and personalities. The data are enriched by respondents’ biographical background and financial balance sheet. Using the SOEP, students can replicate one key result of the chosen paper. In addition, we ask students to come up with (and possibly implement) an idea to extend the result at hand or apply main insights to current societal debates. Any codes (in Stata, R, or Python) or Excel sheets students create in the process have to be submitted at the day of the final presentation.

For the literature review, the chosen paper serves as a point of departure. Students then need to identify related and relevant work to provide a summary and discussion of the current state of the literature.

In addition, we ask students to make an individual presentation reflecting on a key personal experience and its long-run effects. Course concepts serve as a theoretical underpinning. For example, as single children, students might have been shaped by parents’ indulging behavior. Students might identify that this is why Riemann’s hysterical form of fear suits their character, and how this affects their decision-making today. Students present their results only to the professors (not to the entire audience).

1.     Introduction     

       1.     Neoclassical and Behavioral Economics Revisited

       2.     Introduction to Psychology and Economics                 

       3.     Introduction to Group Assignment 

2.     Literature Review on Culture, Experiences, and Economics

       1.     Student Presentations of Paper Summary

4.     Psychological Foundation

       1.     Psychological Theories

       2.     Freud’s Psychoanalysis and Mass Psychology

       3.     Jung’s Archetypes and the Collective Unconscious

5.     Introduction to Student Work

       1.     Introduction to Empirical Part and Literature Review of Group Assignment

       2.     Introduction to Individual Presentation

6.     Personalities, Identity, Trust, and Leadership

       1.     Jung’s Psychological Types, The Big Five, Riemann’s Personalities, and Neurobiological Personality Model

       2.     Trust, Identity, and Leadership                      

7.     Culture, Religiosity, Populism, Socialism, and Gender

       1.     Culture, Religiosity and Populism

       2.     Socialism and Gender

       3.     Clash of Civilizations and Why nations fail?

8.     Guest lecture: tba

9.     Herding and Hording at Capital Markets

       1.     Loss Aversion, Risk Aversion, and Risk Perception

       2.     Exuberance, Panics, Crises, and Financial Regulation

10.   Student Presentations of Empirical Work or Literature Review

Intended Learning Outcomes and Competencies

Students will have improved competencies in understanding personal and organizational perception and decision-making.
Students will have an improved ability to understand top-tier academic research in finance and economics, in the subfield of cultural economics in particular.
Students will have sharpened their empirical skillset.
Students will have obtained foundations in psycholanalysis.

Form of Examination

Literature

• Lucy Ackert and Richard Deaves (2009): Behavioral Finance: Psychology, Decision-Making, and Markets (chapter 7), South-Western College Pub.
• Stefan Betz (2016): Uncovering the Power of the Unconscious: In-Depth Lessons from Modern Psychoanalysis for Management (chapter 2), WHU Master Thesis.
• Robert Shiller (2015, 3. Edition): Irrational Exuberance (part three on psychological factors), Princeton University Press.
• David Tuckett (2011): Minding the Markets: An Emotional Finance View of Financial Instability
• Additional literature will be announced during the lectures