Behavioral Finance

Term: 
Spring
Credits: 
2.0
ECTS credits: 
4.0
Status: 
Core
Elective
Course Description: 

Behavioral finance has gained enormous importance over the past several years. The previously held economic assumption that people always make rational choices has become largely unproven in practice. The course provides an introduction into the study of the effects of social, cognitive, and emotional factors on the economic decisions of individuals and institutions. Psychological biases inhibit the individual’s ability to make good investment decisions. This has several consequences on market prices, returns, and the resource allocation decisions made by indiviudual and corporate decision-makers.

We shall discuss the major themes which are currently prevalent in behavioral finance:

-     Heuristics: People often make decisions based on approximate rules of thumb and not strict logic.

-     Framing: The collection of anecdotes and stereotypes that make up the mental emotional filters individuals rely on to understand and respond to events.

-     Market inefficiencies: These include mis-pricings and non-rational decision-making due to several social norming and herding effects.

Learning Outcomes: 

Students will be provided with  an  understanding of the main reasons behind seemingly rational or  irrational business decisions. By learning about one’s psychological biases, it is easier to overcome them and increase the quality of decision-making.

Students will gain an understanding of how individuals actually make financial decisions (descriptive) and guidance on how to improve financial decision making  in themselves and others.

During class and assignments, students will be expected to cooperate and work in teams. This presupposes being able to find and accept team roles and to deliver a timely and efficient product which all team members contributed to.

Assessment: 

The assessment for the course comprises of 3 parts, with their respective weights detailed below: 

 25% class attendance, seminar preparation, and class participation

50% essay paper and class presentation

25% exam and minute paper

Grading is based on the total score in line with standard grading patterns at CEU.

Essay paper and presentation will be divided between respective students where you will be expected to discuss and address the questions prior to each class session. Students present their discussions/findings/calculations during the seminar sessions. Please check the moodle site for further information.

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