Gary Smith
office hours: MW 12:15-1:15, Carnegie 218
telephone: (909) 607-3135
e-mail: gsmith@pomona.edu

Econ 168: Financial Decision Making

The class will manage hypothetical financial intermediaries, making weekly decisions based on specified economic conditions and on the team’s interpretation of the consequences of previous decisions. These conditions and consequences are determined by a computer simulation model; the detailed rules are described in a separate handout.

The class will meet once a week, on Mondays, to distribute and discuss the results of the previous week’s decisions. The weekly decisions, accompanied by a typed, confidential memorandum (no more than 5 pages, please) explaining the rationale for these decisions and answering any additional questions posed by me, are due in the economics department office each Friday by 4:00 p.m. I will make detailed comments on the memos and grade them on both style and content.

Each Monday, roughly half the teams will present the team’s answers (10 minutes maximum) to some of the questions posed by me for that week’s memo. These presentations can utilize handouts, an overhead projector, and other visual aids. I will take attendance and we will all give constructive written suggestions to those who make oral presentations. Students who miss more than one Monday class will have their numerical score for the course reduced by 1% for each additional Monday class they miss. During the last three weeks of the semester, each team will have an additional opportunity to practice speaking skills by giving a class presentation, as if it were reporting to Congress, a board of directors, or the general public.

On May 3, each student will hand in a typed diary, 10-20 pages long, recounting the hopes andfears behind the semester’s weekly decisions. Every week, you should jot down some candid thoughts that will later remind you why your team did what it did. At the end of the semester, you can turn these notes into a well-written paper.

The course’s objectives are to

1. develop decision-making skills in a realistic environment of competing objectives, recurrent deadlines, and imperfectly anticipated events.

2. provide an interesting opportunity to apply economic logic, statistical tools, and computer talents in a challenging situation in which the consequences of each team’s actions depend on the actions of other teams.

3. improve your writing and speaking skills.

4. improve your understanding of financial institutions and markets.

This course must be taken for a letter grade. There will be no examinations. Each person will be graded on the team’s performance and on the reasonableness of its decisions:

30% financial intermediary’s net worth at end of term

20% weekly confidential memoranda

20% diaries

20% oral presentations

10% oral report

Slacker scores will be adjusted accordingly.

Students with imperfect memories may find the following references useful:

Gary Smith, Macroeconomics, W.H. Freeman, 1985.

Gary Smith, Introduction to Statistical Reasoning, McGraw-Hill, 1998.

Gary Smith, Investments, Little, Brown/Scott, Foresman, 1990.

Gary Smith, Money, Banking, and Financial Intermediation, D.C. Heath, 1991.

Gary Smith, Financial Assets, Markets, and Institutions, D.C. Heath, 1993.