Behavioral Finance

Catalog description

The traditional framework for thinking about financial markets assumes that all market participants are fully rational. Over the past four decades, behavioral finance has emerged as one of the most important paradigm shifts in financial economics, arguing that many market phenomena result from less-than-fully rational thinking among investors, managers, and households. This course provides an in-depth discussion of the field. We first revisit topics in finance from a behavioral finance perspective: markets (stock market fluctuations, popular investment strategies, bubbles); investor behavior (poor investment decisions by households); and corporate finance (security issuance, investments, mergers and acquisitions). We then discuss recent developments in the field, for example, information processing and memory, housing and credit cycles, ESG investing, entrepreneurial decision-making, and the emerging intersection of AI and human bias in financial contexts. A running theme in the course is that knowledge of behavioral finance is essential for anyone who seeks a full understanding of modern financial markets. Over the course, we will draw intuitions from dozens of academic papers.