PSYC 537: Decision Making and Risk Management

[Pages:6]PSYC 537: Decision Making and Risk Management

Spring 2017

Instructor: Professor XT Wang

Place: Old Main 212

Time: MWF, 10:00 a.m. - 10:50 a.m.

Office: SD Room 311

Office Hours: MWF 11:00-11:50

Phone: 677-5183

E-mail: xtwang@usd.edu.

Course Webpage:

This course provides a research overview of the field of behavioral decision making and risk management. We will discuss decision rationalities, theories, research history, psychological values, utility functions, reference points, and personal traits and styles of decision making. We will examine how people perceive risks and make probability judgment, and identify some common biases and traps in making risky decision and inter-temporal choice between an immediate reward and a future reward in financial, social, managerial, political, and cultural contexts. The course is aimed to help better understand, describe, and predict how people make decisions under uncertainty individually and in groups. The course will also offer insights and tools for managing risks and making better decisions. In general, graduate students are expected to identify and explain basic concepts, terminology, and theories of behavioral decision making and apply these knowledges to real world decision problems.

This course adopts multiple means of teaching and learning, including lectures, stock investment exercise, investment analysis, conducting experiments, student presentations, assignments, in-class exercises and demonstrations. To improve and exercise written and oral communication, graduate students are required to identify topic from the course coverage, conduct literature research and write a research paper. Each graduate student will be required to present the paper in class in a similar way as a paper presentation at a professional conference. In addition, each presenter is also required to provide multiple-choice questions regarding the research presented.

Textbook

David Hardman (2009). Judgment and Decision Making: Psychological Perspectives. West Sussex, UK: BPS Blackwell.

Reference Books

Baron, J. (2008). Thinking and Deciding (4th Ed.). Cambridge University Press.

Gigerenzer, G. (2008). Rationality for Mortals: How People Cope with Uncertainty. New York: Oxford University Press.

Hastie, R., & Dawes, R. (2010, 2nd ed). Rational Choice in an Uncertain World. Thousand Oaks, CA: Sage.

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Course Topics, Readings, and Exam Schedule

Topic

Reading Assignments

Brief Review of Behavioral Decision-Making

Chapter 1

Expected Utility Theory and Value Functions

Chapter 7

Prospect Theory

Ch. 11 & 13, Kahneman lecture

Psychology of Money and Ownership

Chapters 11 & 13

Decision Making Style

In-class exercise

Exam 1 Friday, February 10

Investment Tips Heuristics and Biases in JDM Fast & Frugal Heuristics Risk Perception

Notes & Additional Readings Chapters 3, 4, 5, 6, 7 Chap. 2, 11, & Additional readings Chapter12 Exam 2 Monday, March 27

Mental Accounting & Hedonic Psychology

Chapter 8

Intertemporal Choice and Future (Delay) Discount

Chapter 10 & Additional readings

Tri-Reference Point Theory and Applications

Additional Readings

Group Decision Making

Chapters 13, 14 &

Additional readings

Exam 3 Thursday, May 4 (5:30-7:00 pm)

Note: Course topics listed above represent the approximate order in which the topics will be discussed. There may be minor changes in the course and exam schedule.

Lecture Outlines & Readings

Lecture outlines and additional reading assignments will be made available on the course webpage for download to facilitate taking notes in class. Power point files used in lectures will NOT be for circulation.

You should study the relevant chapters, notes and readings before and after each corresponding class.

Investment Project and Assignments

You will be given a hypothetical endowment of $10,000. Go to Yahoo Finance and use its Stock Screening function () and to select your stocks to form your investment portfolio using the Yahoo Finance. Register first and then use the My Portfolio function to form your hypothetical portfolio. All your money has to be invested in stocks during the entire simulation period. To experience real variations in the stock market you should make at least 4 weekly transactions (buy and sell the same stocks). The amount of each transaction should be no less than one-third of the total value of your stocks. Assume a $10 operation fee for each transaction.

For more detailed instruction see the document "DMR (Instruction for Creating a Stock Portfolio)".

Record your portfolio and keep tracking each of your transactions each week, using Excel spreadsheet:

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Portfolio: Your name

Date (have one such recording each week)

Stock Stock Current Qty Price

symbol Name Price

Paid

Date & Time

Market Value

Net Gain or Loss ($ amount & %)

Total

Note. Qty = number of a stock bought; Price paid = Price at the time of buying x Qty + $10 fee. Market value = Qty x Price at the time of weekly reporting Amount of Net Gain or Loss = ($10,000 - Market value), % of Net Gain or Loss = ($10,000 - Market value)/$10,000

You can also visit or other related sites for a basic introduction about stocks.

Conduct your analysis using investment indexes such as company profile, total asset, net revenue, net income, beta, P/E ratio and historical distributions (fluctuation and variation) of the stocks. We will compare and discuss your investment strategies and performance in class on a weekly base.

Portfolio Recording (in Excel) and Report (in MS Word). You need to complete your first portfolio and submit an Excel recoding of this portfolio by February 15th. After the initial construction of your stock portfolio, you need to make transactions (buy and sell stocks) for at least four times, about 7-10 days apart of each other. The amount of each transaction should not be lower than one-third of the total value of your portfolio. Record and update your stock portfolio using Excel recording sheet.

Besides the Excel portfolio recordings, you need to write a 2-page report describing your analysis of the stocks, investment strategies, and psychological factors that influence your decision making in managing the portfolio. The report and the Excel recording sheet need to be submitted via email by April 1st. Your Excel recording should include 5 portfolios: the initial one and the additional 4 with weakly transactions.

You will be asked to discuss your learning experience in managing the portfolio and relevant issues in decision making discussed in class. Your investment performance will be evaluated. The performance will be ranked in terms of total balance.

You will be asked to discuss your learning experience in managing the portfolio and relevant issues in decision making discussed in class. Your investment performance will be evaluated. The performance will be ranked in terms of total balance.

Paper and Presentation

Each student will be assigned a chapter from the textbook and conduct additional literature search to find most recent research articles related to the selected topic. Your paper should

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focus on an interesting topic selected from the assigned chapter with additional analysis, instead of just a summary or overview of the chapter.

Your paper should be 12-15 pages long, not including the tile page and reference list, double spaced, and in APA format. The paper is due on Sunday, March 19th. Late submission will result in point reduction. Submissions five days after the due day will not be considered.

Paper presentations will be scheduled in advance; and each presentation will take 20 minutes followed by a 5-minute Q&A session. Your presentation should mimic conference presentation and focus on one or two studies in details, selected from your paper, which should have a broader scope. Each presenter is required to provide three multiple-choice questions at the end of your presentation. Some exam questions will be selected from these multiple choice questions. Both the ppt presentation file and the multiple-choice questions are due the day before the presentation. Later submission will lead to point-reduction.

Your paper and presentation will be evaluated based on the following criteria: 1) How adequate and relevant was the topic selected and analysis conducted? 2) How well organized was the paper and presentation? 3) How sufficient was the depth of analysis and discussion on theory, hypothesis, method, and results? 4) How well overall was the writing and presentation?

Presentation schedule Friday, March 18 Friday, April 15

Submissions

Paper, Portfolio Reports and Excel recording sheet all should be sent as email attachment (in MS Word format) to the TA of the course and CC to xtwang@usd.edu. The file name of all the submissions should follow the format of Last Name First Name Psyc 437 Paper or Portfolio (e.g., Fallon, Jimmy Psy437 Paper).

Late submission will result in point reduction. No submissions will be accepted 5 days past the due date.

Extra Credit Experiments

Students will be given opportunities to participant in one or two studies on human decision making to gain some firsthand research experience.

Course Requirements and Grading Procedure

A. Class attendance and participation. You should come to each class prepared to participate in discussion and exercises. The attendance and participation points will be given based on roll taken periodically. The lectures and in-class activities often go beyond the scope of the textbook.

B. Exams. Materials covered in exams will be taken from lectures, textbook, class discussions/activities and graduate presentations.

Three regular exams will be given. Exam questions will not be accumulative but be largely restricted to topics covered in the corresponding class lectures, textbook chapters, and class discussion/activities.

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The score of a missed exam will be counted as zero.

C. Grade Distribution. Your overall average score will be determined based on the following formula:

Exam Average

70%

Stock Project and Report

10%

Presentation

5%

Attendance and Participation

5%

The grading scale for your final grade is as follows:

Overall Average 90 80 - 89 70 - 79 60 - 69 < 60

Final Grade A B C D F

Overall Average = Paper + Stock project and Report + Attendance + .70[(E1 + E2 + E3)/3]

Note that the maximum scores for Paper, Project, Portfolio Reports, and Attendance will be 10, 10, 5, and 5, respectively.

Freedom in Learning

Under Board of Regents and University policy student academic performance may be evaluated solely on an academic basis, not on opinions or conduct in matters unrelated to academic standards. Students should be free to take reasoned exception to the data or views offered in any course of study and to reserve judgment about matters of opinion, but they are responsible for learning the content of any course of study for which they are enrolled. Students who believe that an academic evaluation reflects prejudiced or capricious consideration of student opinions or conduct unrelated to academic standards should contact the dean of the college which offers the class to initiate a review of the evaluation.

Policy on Academic Dishonesty

The College of Arts and Sciences considers plagiarism, cheating, and other forms of academic dishonesty inimical to the objectives of higher education. The College supports the imposition of penalties on students who engage in academic dishonesty, as defined in the "Conduct" section of the University of South Dakota Student Handbook.

No credit can be given for a dishonest assignment. At the discretion of the instructor, a student caught engaging in any form of academic dishonesty may be:

a. Given a zero for that assignment. b. Allowed to rewrite and resubmit the assignment for credit. c. Assigned a reduced grade for the course. d. Dropped from the course. e. Failed in the course.

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Disability Policy Any student who feels s/he may need academic accommodations or access

accommodations based on the impact of a documented disability should contact and register with Disability Services during the first week of class. Disability Services is the official office to assist students through the process of disability verification and coordination of appropriate and reasonable accommodations. Students currently registered with Disability Services must obtain a new accommodation memo each semester.

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