Lecturer: Peter Bossaerts
Department: Economics
Level: Post grad
Summary: (Part 1 only). The course focuses on how markets deal with uncertainty. General equilibrium is emphasized, which refers, loosely speaking, to the point at which traders in multiple, simultaneous markets no longer desire further trade. Are the resulting allocations optimal? What if everyone can re-trade in the future after some information is revealed? What if some traders have privileged information? We will not just cover theory, but engage in a dialogue between theory and experiment, as if this were a physics class (for a beautiful version of a physics class, see Feynman’s Lecture Notes). This avoids the impression that (i) economic theory is like ‘legal argument,’ a logically coherent way to think about economics that allows one to set policy, (ii) economic theory is merely a way to make sense (‘rationalize’) economic history, (iii) economic theory is valid if it can somehow be confirmed in historical data. We will at times try to comment on how the theory sheds light on history. A succinct discussion of the approach we take can be found in a chapter of the Handbook of Experimental Finance.