Education As Public Good: Behavioral Economics Approach (original) (raw)

Can Financial Education Extend the Border of Bounded Rationality?

SSRN Electronic Journal, 2015

When choosing a particular alternative from a number of financial assets, risk is an important feature. According to the classic Capital Assets Pricing Model (CAPM), we would expect to receive a positive correlation between risk and return of financial assets. However, studies show that investors judge financial assets in terms of "good" or "bad". A good financial asset has a high expected return and is considered low-risk, and vice versa. This type of thinking is biased, as it is both irrational and contradicts the classical theory of finance. One explanation for this bias is the affect heuristic. According to this heuristic, the investor forms her attitude about the asset in the first stage, and then links all of her subsequent judgments to this attitude. The aim of this study is to examine how this bias is affected by studying the CAPM in Finance entry courses. An experiment was conducted in which each subject made both risk judgments and return judgments in regard to 25 domestic stocks chosen randomly from the Tel Aviv 100 stock index. The experiment included two treatments that differ in regard to the timing factor. Some of the subjects were asked to judge the return and risk ratings before learning about the CAPM in class; the others were asked after studying the CAPM material. Finance education reduced the bias, but did not prevent it. The results show that in the teaching of Economics, there should be a balance between providing a coherent theoretical framework together with behavioral aspects. Moreover, given that finance education did not prevent the bias among students with background in quantitative analysis, it is reasonable to assume that other agents without this background would have more difficulties to apply the principles of investments under uncertainty.

Bounded Rationality and Perfect Rationality: Psychology into Economics

Theoretical and Practical Research in Economic Fields, 2012

Mathematical algorithms often fail to identify in time when the international financial crises occur although, as the classical theory of choice would suggest, the economic agents are rational and the markets are or should be efficient and behave also rationally. This contribution tries to highlight some well-known limits of the classical theory of rational choice and compare this theory of choice with bounded rationality, which is a different notion of rationality, and with an approach that seeks to combine economics and psychology, based on experimental data, which established itself as behavioral economics. The work also examines part of the literature of behavioral finance which has given important contributions in explaining the behavior and the anomalies of financial markets. A final reference is dedicated to neuroeconomics that is gaining more and more ground in the analysis of economic behavior.

A NEW RELATIONSHIP FOR ECONOMICS AND EDUCATIONAL SCIENCES: FINANCIAL EDUCATION

Agora International Journal of Juridical Sciences , 2022

Among the many areas of dialogue between economics and educational sciences, one common object of study has now clearly emerged: economic and financial education, which was created to raise the literacy levels of the adult population and young people. Indeed, more and more decisions in everyday life are linked to economic and financial aspects. The current economic and financial knowledge of the population is not adequate to the needs as it comes mainly from financial socialisation processes; it is instead necessary for schools and not only the banking and insurance world to deal with these new educational processes. However, in order to introduce these topics, schools must train teachers who do not have adequate knowledge. In Romania, this is a recent issue, which is why it was decided to launch a new research project.

Rational Human Model in Economics and Psychology

DergiPark (Istanbul University), 2018

Methodology of the economics had been under the effects of other disciplines but later it has become reserved, and its contact to various disciplines has stayed more limited. One of the key factors for a discipline's progress is that the gains acquired from other disciplines. Economics should cooperate with not only with all kinds of social sciences, but also with other disciplines such as physics, medicine and psychology. For that reason, scientists should apply the developments in different disciplines to their research areas. In this context, it can be said that the relationship that exists between the mainstream economics and other disciplines are not sufficient enough. In order to understand the new economic activities and to develop economic policies related to them, a critical evaluation of what we have is essential. This issue has become important enough to reconsider the basic assumptions of the neoclassical economics. Rational Human (homo economicus) Model becomes one of the most prominent assumptions of the neoclassical economics. The consideration of the economics as in a structure, which is determined by assumptions of the rational behavior, causes to the fact that the effects of irrational factors to human behaviors are ignored. According to Freud, our reasonable and conscious behaviors constitute a small part of all our general behavior. If we do not evaluate human as a whole it is not possible to comprehend them. For this, our unconscious behaviors (not necessarily irrational) should be examined. The methodology of this study is to highlight weaknesses of the methodology of the mainstream economics and mainly of the rational human assumption. For this purpose we benefit from Institutional Economics, Behavioral Economics, physics and psychology, while we question the rational human assumption.

BEHAVIORAL ECONOMICS IN THE CLASSROOM Principles of ( Behavioral ) Economics

2015

There are many great ways to incorporate behavioral economics in a first-year undergraduate economics class—i.e., the course that is typically called “Principles of Economics.” Our preferred approach integrates behavioral economics throughout the course (e.g., see Acemoglu, Laibson, and List 2015). With the integrated approach, behavioral content plays a role in many of the chapters of the principles of economics curriculum, including chapters on optimization, equilibrium, game theory, intertemporal choice, probability and risk, social preferences, household finance, the labor market, financial intermediation, monetary policy, economic fluctuations, and financial crises. We prefer the integrated approach because it enables the behavioral insights to show up where they are conceptually most relevant. By illustration, it is best to combine a discussion of downward nominal wage rigidity (i.e., the idea that workers strongly resist nominal wage declines) with the overall discussion of t...

A Different Approach in the Field of Financial Behavior

2015

Economics as one of the human sciences that selection and exchange of people and huge economic consequences this decision will be studied at the level of society, psychologists have always been accused of ignoring the evidence and facts are related to human behavior. With established principles of behavioral economics wisdom and shaping a system of ideas based on this assumption, claiming compatibility with this scientific field. Since the unit of analysis in the science, the individual and his behavior, the interaction between science economics and psychology can be used for economic theorist's economists. Financial and investment topics in behavioral science from the new issues that have been raised recently in the sciences and financial investment. In this paper we examine the field of behavioral finance in that.