• 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 standard rational paradigm in economics of the last fifty years has been highly successful in explaining aggregate market behavior. However, anomalies have been accumulating that are difficult to explain in terms of the standard rational paradigm, many of which are consistent with recent findings from psychology. Behavioral finance and economics makes this connection, applying insights from psychology to decision making and its consequences. It puts a human face on the financial markets and agency contracts, and recognizing that market participants are subject to biases that have predictable effects on prices and decisions. It thus provides a powerful new tool for understanding decision making and one that complements, rather than replaces, the standard rational paradigm.

At their core, behavioral theories analyze the ways that people make decisions. Besides the impact on financial markets and individual decision making, this also has relevance to corporate decision making, investor behavior, and personal financial planning. Our psychological biases have real financial effects, whether we are corporate managers, professional investors, or personal financial planners. When we understand these biases, we can make better decisions ourselves, and better understand the behaviors of others and of markets.  

The objective of the course is to provide master students with a broad understanding of how human psychology affects decisions, with specific reference to the impact on financial markets, corporate finance, and personal financial decisions. The teaching is interactive and students are expected to participate in class discussions.

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.

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

A few topical pages or chapters from other books

Some journal articles