Risk and Information module (BU40018)

Uncertainty and information gaps play a key role in shaping individual and corporate behaviours or the amount of Risk they are willing to take. When faced with uncertain outcomes or incomplete information about market conditions, individuals and corporations tend to adopt cautious strategies having a large impact on the economy.

Impacts may be delayed investments, more put into savings, or less caution in offsetting potential losses. This behaviour can lead to reduced consumer spending, lower business investments, and economic slowdown. Governments often focus on enhancing information transparency, providing economic forecasts, and implementing measures to give individuals and organisations confidence in the economy.

You will explore both conventional and behavioural theories, comparing and contrasting the two.

Understanding risk and information can help you explain many aspects of economic life such as wage setting, insurance, loan policies by banks, credit crunches, financial regulation, risk pooling, and firm management.

What you will learn

In this module, you will:

• be introduced to the conventional theory of choice under risk, which helps us understand how people will behave and react because of risk
• analyse notions of risk pooling and risk sharing, which is compared with a more behaviourally oriented theory of choice
• market inefficiency in the and suboptimal behaviour which happens when two parties have different amounts of information

By the end of this module, you will be able to:

• debate between conventional and behavioural theories, using academic argument to propose the best choice and possible solution
• explain when risk pooling and risk sharing may be used plus summarising the advantages and disadvantages of both
• highlight how markets can run efficiently when all parties have the appropriate amount of information to make informed decisions

Assignments / assessment

• Essay (20%)
• Class test (20%)
• Final exam (60%)

Teaching methods / timetable

You should expect weekly lectures and workshops. You will be provided with a reading list and be expected to have prepared ahead of the workshops to allow you to contribute to the class.

For this module, the exact dates of teaching and/or reading weeks are to be confirmed.