Behavioral Economics and Decision Making


Volodymyr Vakhitov

Assistant Professor, Kyiv School of Economics and

Senior Researcher, National Research University Higher School of Economics



6,0 ECTS

45 contact hours; 150 student work hours



Corporate Finance, understanding of principles of Microeconomics


Aim of the Course:

Classical models of decision making are based on assumptions which often cannot be supported in everyday human behavior, such as rationality of choice, ability to calculate various risks and pick the best alternative from among several ones, ability of different people to make similar decisions in similar situations, etc. Recent studies in experimental and behavioral economics, as well as in neuroscience assertively oppose validity of such assumptions. Decision making process appears to be affected by emption, framing, various psychological and behavioral biases and numerous heuristics methods (shortcuts which facilitate the search for an acceptable decision).

Consequently, such decisions are not always optimal, rigorously speaking, but, rather, “acceptable”, given personal characteristics of an individual. In other words, economic agents demonstrate “bounded rationality” when (not always correctly) assessing uncertain causes and outcomes of their actions.

In our course we will study how “bounded rationality” affects the process of making economic and financial decisions under uncertainty, and will learn, how to recognize and use possible biases to minimize risks and possible losses. Besides, this knowledge might help in constructing more realistic strategies in sales, investment and personnel management. In general, the set of skills acquired in this course will give clear competitive advantage on the job market, as such a course is not universally proposed in most universities.


Upon completion of the course, a student will acquire the following skills and knowledge:

  • General understanding of the decision-making process under uncertainty
  • Understanding of biases in behavior of economic agents as opposed to one assumed in classical economic models, as well as how these biases shape one’s behavior.
  • Ability to make decisions taking into account personal risk attitude
  • Ability to recognize “mind traps” and avoid them, thereby minimizing possible financial losses
  • Ability to utilize emotional and behavior stereotypes for shaping the most desirable behavioral strategy of customers, clients and employees


Course Content:

Part 1. Principles of decision making

Topic 1. Expected utility theory

Topic 2. Prospects theory

Topic 3. Market efficiency and registered anomalies

Topic 4. Personal assessment of risk attitude. Personal perception of probability


Part 2. Introduction to Behavioral Economics

Topic 5. Major heuristics in decision making

Topic 6. Why do we pay so much for something that costs so little.

Topic 7. Why free could be more valuable than something we pay for.

Topic 8. Procrastination and self-control.

Topic 9. Effect of default options and status-quo bias

Topic 10. What is the best way to compensate: The role of money

Topic 11. Everybody lies.

Topic 12. Mental accounting

Topic 13. The role of emotions


Part 3. Introduction to Behavioral Finance

Topic 14. How behavioral finance explains stock market anomalies

Topic 15. An issue of incorrect confidence intervals prediction and planning horizons

Topic 16. Too frequent trade. Calendar trading.

Topic 17. An issue of experts opinions.

Topic 18. Emotional investing


Part 4. Behavioral economics and management

Topic 19. Making managerial decisions: behavioral outlook

Topic 20. Gender, social norms, status effects in management

Topic 21. Why top salaries do not always induce top performance

Topic 22. “Self-made” as incentive


Teaching Methods:

Lectures, case studies, group work, exercises, home and class discussion and assignments.


Course reading:

  • Montier, James. Behavioural Investing: A Practitioners Guide to Applying Behavioral Finance. Wiley, 2009.
  • Ackert, Lucy, and Richard Deaves. Behavioral finance: Psychology, decision-making, and markets. South-Western Pub, 2009.
  • Pompian, Michael. Behavioral Finance and Wealth Management.  Wiley, 2006.
  • Thaler, Richard. The Winner’s Curse. Paradoxes and Anomalies of Economic Life. 1992
  • Shiller, Rober. Irrational Exuberance. Broadway Books, 2006
  • Ariely, Dan. Predictably Irrational. Harper Collins, 2008
  • Ariely, Dan. The Upside of Irrationality: The Unexpected Benefits of Defying Logic, 2011
  • Advances in Behavioral Economics, by by Colin F. Camerer (Editor), George Loewenstein (Editor), Matthew Rabin (Editor)
Alumni reviews