ECO 350K • Household Finance
This course explores some economic aspects of household financial decisionmaking. Students will learn about decision-making under uncertainty, including expected utility, ideas of risk-aversion, and insurance. Additional discussion will focus on the mathematics of debt products, with the prime example of home mortgages. The institution of bankruptcy will be analyzed in some detail students will develop an understanding of the economic content of some aspects of bankruptcy, such as discharge of debt and fresh start, impact on entrepreneurship, differences in bankruptcy procedures available to consumers (Chapter 7 versus Chapter 13), and so on. Economic aspects of the institutional framework of debt markets will also be discussed, including the roles of consumer reporting agencies that develop credit reports, of credit scores, and of some laws governing debt markets, such as the Truth in Lending Act, and the Fair Credit Reporting Act. Depending on time constraints, some capital markets aspects of household debt can be analyzed, including a discussion of markets for asset-backed securities, and the allocation and transfer of risks among parties involved in an asset securitization. Pre-requisite: ECO420K. Students are expected to be comfortable with multivariable calculus and optimization techniques, and their application to economic analysis, as covered in ECO420K. Moreover, students should be prepared to apply basic economic reasoning, to take initiative, and to demonstrate some independent thinking.