Run by Bangor Business School
10 Credits or 5 ECTS Credits
Organiser: Dr Marco Pelliccia
Overall aims and purpose
The aim of this module is to show how core theories in finance and banking derive from foundations in economic theory. It will examine decision making in a utility maximising framework under uncertainty and under asymmetric information; and demonstrate how the main results of finance theory emerge from this framework.
1. Decision making under uncertainty:
- Expected value and the St Petersburg paradox.
- Expected Utility Theory (EUT).
- Risk aversion.
- Mean-variance analysis as a special case of EUT.
- Critiques of EUT – the Allais paradox.
2. Decision making under asymmetric information:
- Adverse selection.
- Moral hazard.
- Principal-agent problems.
- Applications in finance and banking theory, e.g. capital structure of firms, incentive effects of debt and equity, bank runs.
C- to C+
50-59% Much of the relevant information and skills mostly accurately deployed. Adequate grasp of theoretical/conceptual/practical elements. Fair integration of theory/practice/information in the pursuit of the assessed work's objectives. Some evidence of the use of creative and reflective skills.
40-49% No major omissions or inaccuracies in the deployment of information/skills. Some grasp of theoretical/conceptual/practical elements. Integration of theory/practice/information present intermittently in pursuit of the assessed work's objectives.
60-69% Most of the relevant information accurately deployed. Good grasp of theoretical/conceptual/practical elements. Good integration of theory/practice/information in pursuit of the assessed work's objectives. Evidence of the use of creative and reflective skills.
70% + An outstanding performance, exceptionally able. The relevant information accurately deployed. Excellent grasp of theoretical/conceptual/practice elements. Good integration of theory/practice/information in pursuit of the assessed work's objectives. Strong evidence of the use of creative and reflective skills.
Analyse and critique theories in finance and banking.
Understand and model the key concepts of decision making under asymmetric information.
Understand and model the key concepts of decision making under uncertainty.
|Exam S1 2hrs||70|
Teaching and Learning Strategy
One 2-hour lecture each week
- Literacy - Proficiency in reading and writing through a variety of media
- Numeracy - Proficiency in using numbers at appropriate levels of accuracy
- Computer Literacy - Proficiency in using a varied range of computer software
- Self-Management - Able to work unsupervised in an efficient, punctual and structured manner. To examine the outcomes of tasks and events, and judge levels of quality and importance
- Exploring - Able to investigate, research and consider alternatives
- Information retrieval - Able to access different and multiple sources of information
- Critical analysis & Problem Solving - Able to deconstruct and analyse problems or complex situations. To find solutions to problems through analyses and exploration of all possibilities using appropriate methods, rescources and creativity.
- Argument - Able to put forward, debate and justify an opinion or a course of action, with an individual or in a wider group setting
Subject specific skills
- Abstraction. From the study of economic principles and models, students see how one can abstract the essential features of complex systems and provide a useable framework for evaluation and assessment of the effects of policy or other exogenous events. Through this, the typical student will acquire proficiency in how to simplify while still retaining relevance. This is an approach that they can then apply in other contexts, thereby becoming more effective problem-solvers and decision-makers.
- Analysis, deduction and induction. Economic reasoning is highly deductive, and logical analysis is applied to assumption-based models. However, inductive reasoning is also important. The development of such analytical skills enhances students' problem-solving and decision-making ability.
- Quantification and design. Data, and their effective organisation, presentation and analysis, are important in economics. The typical student will have some familiarity with the principal sources of economic information and data relevant to industry, commerce, society and government, and have had practice in organising it and presenting it informatively. This skill is important at all stages in the decision-making process.
- Framing. Through the study of economics, a student should learn how to decide what should be taken as given or fixed for the purposes of setting up and solving a problem, i.e. what the important 'parameters' are in constraining the solution to the problem. Learning to think about how and why these parameters might change encourages a student to place the economic problem in its broader social and political context. This 'framing' skill is important in determining the decision-maker's ability to implement the solutions to problems.
Talis Reading listhttp://readinglists.bangor.ac.uk/modules/asb-3313.html
"Economic and Financial Decisions under Risk" by Eeckoudt, Gollier, Schlesinger “Financial Economics” by Eichberger and Harper “Intermediate Microeconomics: A Modern Approach” (9th Edition) by Varian, H.
Pre- and Co-requisite Modules
Courses including this module
Compulsory in courses:
- LN14: BA Economics/Accounting year 3 (BA/ECA)
- LN15: BA Accounting & Economics (with International Experience) year 4 (BA/ECAIE)
- L190: BSc Business Economics year 3 (BSC/BEC)
- L19B: BSc Business Economics (4 year with Incorporated Foundation) year 3 (BSC/BEC1)
- L191: BSc Business Economics with International Experience year 3 (BSC/BECIE)
- L192: BSc Business Economics (Bangor International College) year 3 (BSC/BICBE)
- L193: BSc Financial Economics (Bangor International College) year 3 (BSC/BICFE)
- L111: BSc Financial Economics year 3 (BSC/FINEC)
- L11B: BSc Financial Economics (4 year w Incorporated Foundation) year 3 (BSC/FINEC1)
Optional in courses:
- L1T1: BA Economics and Chinese year 4 (BA/ECCH)
- LR13: BA Economics/Italian year 4 (BA/ECIT)
- LL13: BA Sociology/Economics year 3 (BA/ECS)
- LL2B: BA Sociology & Economics (4 yr with Incorporated Foundation) year 3 (BA/ECS1)
- LR14: BA Economics/Spanish year 4 (BA/ECSP)
- LR11: BA French/Economics year 4 (BA/FREC)
- LR12: BA German/Economics year 4 (BA/GEC)
- LV11: BA History/Economics year 3 (BA/HEC)
- LL14: BA Social Policy/Economics year 3 (BA/SPEC)
- LL1B: BA Social Policy & Economics (4yr with Incorp Foundation) year 3 (BA/SPEC1)
- NL41: BSc Accounting and Economics year 3 (BSC/ACCEC)
- NL4B: BSc Accounting and Economics (4 year with Incorp Foundation) year 3 (BSC/ACCEC1)
- NL42: BSc Accounting and Economics with International Experience year 4 (BSC/AEIE)
- 8V55: BSc Banking and Finance (with International Experience) year 3 (BSC/BFIE)
- N391: BSc Banking and Finance year 3 (BSC/BFIN)
- N39B: BSc Banking and Finance (4 year w Incorporated Foundation) year 3 (BSC/BFIN1)
- N324: BSc Banking and Finance (Bangor International College) year 3 (BSC/BICBF)
- GN41: BSC Computer Science for Business year 3 (BSC/CSFB)
- GN4B: BSc Computer Science for Business (4 year with Incorp Found) year 3 (BSC/CSFB1)