Behavioral Finance · Market DynamicsHerd Behavior in Financial MarketsWhy smart investors abandon their own analysis and follow the crowd — and how this collective irrationality creates asset bubbles, crashes, and market contagion.Between 1995 and 2000, the NASDAQ Composite rose 400%. Investors poured money into companies with no revenue, no profits, and sometimes no product — simply because...
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Cognitive Biases in Investing: The Complete Guide with Real Examples
Behavioral Finance · Cognitive PsychologyCognitive Biases in InvestingYour brain was not designed for the stock market. Here are the 8 cognitive biases that systematically destroy investor returns — and what the research says about overcoming them.Studies consistently find that average individual investors significantly underperform the market indices they invest in — not because of bad luck,...
Prospect Theory Explained: Why Losses Hurt More Than Gains Feel Good
Behavioral Finance · Decision TheoryProspect Theory ExplainedThe Nobel Prize-winning model that explains why losing £100 feels worse than gaining £100 feels good — and why this asymmetry shapes every financial decision you make.Imagine you're offered two choices: (A) a guaranteed £50, or (B) a 50% chance of £100. Standard expected utility theory says both have the same expected value — and a...
What is Behavioral Finance? How Psychology Shapes Investment Decisions
Financial Economics · Behavioral FinanceWhat is Behavioral Finance?Traditional finance assumes investors are rational. Behavioral finance asks: what happens when they're not? The answer rewrites everything we thought we knew about markets.In 1987, global stock markets crashed by over 20% in a single day. Prices had not changed. No new information had arrived. No economic fundamentals had...
Heteroskedasticity: What It Is, Why It Matters, and How to Fix It
Heteroskedasticity explained simply — your coefficients are still fine, but your standard errors are wrong. A beginner-friendly guide to what causes it, how to detect it with Breusch-Pagan and White tests, and how to fix it with robust standard errors and WLS. Includes the Preston curve case study and practice questions.
Dominant Strategy in Game Theory: Definition, Examples and How to Find It
Game Theory · StrategyDominant Strategy in Game TheoryThe clearest solution concept in game theory — when one strategy is always best, regardless of what anyone else does.In most strategic situations, the best thing to do depends heavily on what your opponent does. But sometimes — and this is what makes these situations especially powerful — one strategy is better than all others no matter what...
Instrumental Variables and Two-Stage Least Squares: Solving the Endogeneity Problem
Instrumental variables explained simply — why OLS gets it wrong, what a good instrument looks like, and how the Vietnam draft lottery revealed that military service actually hurts earnings. A beginner-friendly guide to IV and 2SLS with worked examples and practice questions.
Omitted Variable Bias: How to Predict the Direction Before You Run the Regression
The omitted variable bias formula, the sign table, and how to work out whether your coefficient is too big or too small before you touch the data. With worked examples from the returns-to-education literature.
Zero-Sum vs Non-Zero-Sum Games: Key Differences with Examples
Game Theory · Core ConceptsZero-Sum vs Non-Zero-Sum GamesOne of the most fundamental distinctions in game theory — and one that determines whether cooperation is even possible between rational players.When two people negotiate a salary, does one person's gain always come at the other's expense? When two firms compete for market share, is the winner's gain always the loser's loss? The answer in...
Fiscal Policy: Government Spending, Taxation, Multipliers, and the Debt Debate
Fiscal policy explained simply — multipliers, crowding out, Ricardian equivalence, and the austerity debate. A beginner-friendly guide to how government spending and taxation work, why Europe’s 2010 austerity programme hurt more than expected, and how to evaluate fiscal stimulus.
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