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2012/2013  BA-HA_E144  Behavioural Finance

English Title
Behavioural Finance

Course information

Language English
Exam ECTS 7.5 ECTS
Type Elective
Level Bachelor
Duration One Semester
Course period Third Quarter
Changes in course schedule may occur
Tuesday 11.40-14.15, week 5-6,8-10
Wednesday 9.50-12.25, week 5-6,8-10
Time Table Please see course schedule at e-Campus
Max. participants 60
Study board
Study Board for BSc in Economics and Business Administration
Course coordinator
  • Bjarne Florentsen - Department of Finance
Secretary Marianne Andersen - ma.fi@cbs.dk
Main Category of the Course
  • Finance
Last updated on 17-12-2012
Learning objectives
The course will provide students with an understanding of how human psychology leads to biases and mistakes in the financial decisions of others and potentially of themselves. Through an awareness of these biases and mistakes, students will be better able to mitigate them as finance industry professionals, managers in non-financial firms, and investors of their own money.
To attain the top grade, students are required to have a good understanding of the major concepts and issues in behavioral finance. This includes the ability to:
• Identify and apply psychological concepts to financial markets and financial decision-making.
• Compare and contrast behavioral and non-behavioral explanations of financial phenomena.
• Apply the psychological and behavioral finance concepts to new problems outside the finance discipline.
The course is especially recommended for students in the final year of their bachelor studies with a strong interest in finance and financial decision making. The course requires knowledge of basic financial theory, as acquired for example in a standard corporate finance course.
4 hour closed book exam.
4 hour closed book exam.:
Type of test Written Exam
Marking scale 7-step scale
Second examiner No second examiner
Exam period Spring Term
Aids Please, see the detailed regulations below
Duration 4 Hours
The exam is a 4 hour written, closed book exam. The exam is PC-based with no internet access. It is possible to write in hand. Following calculators are allowed: Hewlett-Packard: HP10BII and Texas: Texas BAII Plus. English dictionaries are allowed.

The re-take exam will take place using the exact same conditions as for the ordinary exam, unless the number of students for the re-take is such that it can be held as an oral exam. The exam would then be a 20 minute oral exam without preparation time. The different exam forms for the re-takes will be uploaded to the exam plan on e-campus.

Students doing the HA (Almen) programme are able to write their bachelor thesis in this elective. HA(Almen)students who are interested in writing bachelor thesis in this elective have to sign up through the HA Secretariat due to the fact that only 15 students from the HA Almen programme can write their bachelor thesis in this elective. Further details regarding signing up will be sent to the HA Almen students emails in Oktober 2012.
Students who are studying at other bachelor programmes at CBS and HA Almen students who are not going to write their bachelor thesis in this elective sign up for the course through the Electives Secretariat.
Course content

The objective of the course “Behavioural Finance” is to provide bachelor students with a broad understanding of how human psychology affects financial decisions, with specific reference to the impact on financial markets, corporate finance, and personal financial decisions.

Teaching methods
The teaching is interactive and students are expected actively to participate in class discussions and short experiments.
Expected literature

The literature is indicative.
Main text:

Ackert, Lucy, and Richard Deaves, 2009, Behavioral Finance: Psychology, Decision-Making, and Markets. South-Western Cengage Learning

Supplementary readings:

Fox, J., 2009, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. Harper Business, New York

Shrefrin, Hersh, 2000, Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. Oxford University Press

Thaler, Richard H., and Cass R. Sunstein, 2009, Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press

Recommended articles:

Baker, Malcolm, and Jeffrey Wurgler, 2007, Investor Sentiment in the Stock Market, Journal of Economic Perspectives 21(2): 129–151

Barber, Brad, and Terrance Odean, 2001, The Internet and the Investor, Journal of Economic Perspectives, 15(1): 41-54

Benartzi, Shlomo and Richard H. Thaler, 2007, Heuristics and Biases in Retirement Savings Behavior, Journal of Economic Perspectives 21(3): 81–104

Caginalp, Gunduz, David Porter, and Vernon Smith, 2001, Financial Bubbles: Excess Cash, Momentum, and Incomplete Information, Journal of Behavioral Finance, 2(2): 80-99

Doya, Kenji, 2008, Modulators of decision making, Nature Neuroscience 11(4): 410-416

Federal Reserve Bank of San Francisco, 2008, The Subprime Mortgage Market: National and Twelfth District Developments, 2007 Annual Report: 6-17

Financial Crisis Interviews, 2011, Various (to be circulated)

Garber, Peter M., 1990, Famous First Bubbles, Journal of Economic Perspectives, 4(2): 35-54

Hong, Harrison, and Jeremy C. Stein, 2007, Disagreement and the Stock Market, Journal of Economic Perspectives 21(2): 109–128

Hvidkjaer, Soeren, 2008, Small Trades and the Cross-Section of Stock Returns, Review of Financial Studies 21(3): 1123–1151

Kahneman, Daniel, and Dan Lovallo, 1993, Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking, Management Science 39(1): 17-31

Loewenstein, George, and Richard Thaler, 1989, Anomalies: Intertemporal Choice, Journal of Economic Perspectives, 3(4): 181-193

Malmendier, Ulrike, and Geoffrey Tate, 2008, Who makes acquisitions? CEO overconfidence and the market's reaction, Journal of Financial Economics 89(1): 20-43

McClure, Samuel M., David I. Laibson, George Loewenstein, and Jonathan D. Cohen, 2004, Separate Neural Systems Value Immediate and Delayed Monetary Rewards, Science 306(5695): 503 – 507

Nocera, Joe, 2008, The Reckoning: As Credit Crisis Spiraled, Alarm Led to Action, New York Times, 1 October 2008

Odean, Terrance, 1999, Do Investors Trade Too Much? American Economic Review, 89: 1279-1298

Peston, Robert, 2010, Regulators agree 7% capital ratio for banks, BBC News, 9 September 2010: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/09/regulators_agree_7_capital_rat.html

Platt, Michael L., and Scott A. Huettel, 2008, Risky business: the neuroeconomics of decision making under uncertainty, Nature Neuroscience, 11(4): 398-403

Reimers, Stian, Elizabeth A. Maylor, Neil Stewart, and Nick Chater, 2009, Associations between a one-shot delay discounting measure and age, income, education and real-world impulsive behavior, Personality and Individual Differences, 47(8): 973-978

Shiller, Robert J., 2003, From Efficient Markets Theory to Behavioral Finance, Journal of Economic Perspectives 17(1): 83-104

Siegel, Jeremy J., and Richard H. Thaler, 1997, Anomalies: The Equity Premium Puzzle, Journal of Economic Perspectives, 11(1): 191-200

Sorkin, Andrew R., 2008, Lehman Files for Bankruptcy: Merrill Is Sold, New York Times, 14 September 2008

Thaler, Richard H., 1999, Mental Accounting Matters, Journal of Behavioral Decision Making 12: 183-206

Thaler, Richard H., and Eric J. Johnson, 1999, Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice, Management Science 36(6): 643-660

Tversky, Amos, and Daniel Kahneman, 1974, Judgment under Uncertainty: Heuristics and Biases, Science 185(4157): 1124-1131

Last updated on 17-12-2012