Behavioral Finance

Catalog description

This course combines insights from behavioral economics and psychology to shed light on anomalous decisions by investors and possibly behavior of asset prices. Its content is designed to both complement and challenge the "rational" investment paradigms developed in the early finance classes. It introduces students to much modern theoretical and empirical research showing this paradigm to be insufficient to describe various features of actual financial markets. The course structure involves early lectures, several cases, and a final project involving "real life" examples and some modern research methods. In the capstone project students research and explore a specific behavioral bias or a profitable investment opportunity. Students will work in groups to simulate the behavior of, say: a portfolio management team looking for a new trading strategy; a consulting firm advising corporations on issues of financial management; or an entrepreneurial start-up developing a retail financial product. The main deliverable is in a form of a "pitch" to potential clients to be delivered both in the form of a group presentation in class and a formal write-up to be submitted by the due date.