Psychology and Economics - (F-M)

In Psychology and Economics, we discuss the relevance of emotions and (childhood) 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 developmental psychology, are fundamental building blocks for understanding human perception and decision-making, and hence emotional finance. We elaborate Tuckett’s approach to emotional finance, which builds on Freud‘s comprehensive theory of psychoanalysis. As irrational exuberance and panic are stylized facts of capital markets, we study concepts like crowd psychology and herding. In the following, we discuss various applications of these different concepts in finance and economics, such as personality, identity, trust, gender, and culture.

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 has to do 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. These data are enriched by respondents’ biographical background and financial balance sheet. Using the SOEP, students will 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. 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. Students also need to submit a short summary of the research idea aimed at extending the paper under study, which is also due on final-presentation day. The timetable for these tasks is below, written in italic.

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. The timetable for these tasks is below, written in italic.

After the last lecture, we ask students to additionally write an individual essay reflecting on a key (childhood) 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.

Course Contents 

1 .    Introduction                            10.01.
1.1    Neoclassical and Behavioral Economics Revisited        
1.2    Introduction to Psychology and Economics        
2.    Literature Review                        17.01.
2.1    Literature on Culture, Experiences, and Economics        
3.    Psychological Foundation                    24.01.
3.1    Psychological Theories
3.2     Freud’s Psychoanalysis 
3.3    Freud's Mass Psychology
3.4    Jung’s Archetypes and the Collective Unconscious
4.    Personalities, Gender Identity, and Trust            31.01.
4.1    Jung’s Psychological Types, Riemann’s Personalities, and The Big Five 
4.2    Gender Identity and Trust
4.3    Guest Lecture by Nicole Strüber “Neuroscience and Personalities”        
5.    Capital Markets                            02.02.
5.1    Loss Aversion, Risk Aversion, and Risk Perception
5.2    Herding, Exuberance, and Crises
5.3    Financial Regulation
6.    Team Sessions with Philip Schnorpfeil                07.02.
7.    Culture, Religiosity, and Socialism                14.02.
7.1    Culture with an Application to Religiosity
7.2    Socialism Literature in Economics and Psychology
7.3    Guest Lecture by Gerold Grasshoff “The Legacy of Socialism”
8    Student Presentations of Empirical Work or Literature Review    17.02.

Students will have sharpened their empirical skillset.

Students will have obtained foundations in psycholanalysis.

group assignment (40%)

class participation (20%)