Behavioral Finance

Topics: Behavioral economics, Behavioral finance, Economics Pages: 3 (415 words) Published: March 3, 2013
We are constantly making decisions. Traditional economic theory tells us that we are rational in our decisions. Does this hold true in real life? Recent research in behavioral sciences evaluates the choices, preferences, and judgments we make and suggests that the real world is very different from the ideal world.

In this course you will question traditional theories of economics and finance, learn about psychology, sociology and behavioral sciences as you prepare to face the real world with the mantra of a “multi-disciplinary approach” to life.


Introduction to Behavioral Finance
Neo-classical economics versus Behavioral Economics
Efficient Market Hypothesis


Bounded rationality
Class experiment on rationality
Class debate on Market Efficiency




Class quiz
Discussion of class quiz answers with the objective of introducing the concept of Biases


Heuristics and Biases
Case Study on Sell-side analyst bias


Heuristics and Biases
Loss aversion
Case Study on loss aversion


Heuristics and Biases
Group Behavior, Placebo Effect, Causality
Class experiment on Ultimatum Game


Heuristics and Biases
Sunk cost, Case study on Sunk cost


Heuristics and Biases
Closed end fund puzzle, Overconfidence bias and excessive trading Endowment Effect, Halo Effect

10 Neuro-economics
Ethics in Decision Making

Recommended books and readings

Beyond Greed and Fear, by Hersh Shefrin (Harvard Business School Press)


Predictably Irrational, by Dan Ariely (Harper Collins)


Behavioural Investing, by James Montier (John Wiley and Sons Ltd)


Maps of Bounded Rationality – By Daniel Kahneman

1. The faculty may not cover topics strictly in the order mentioned above 2. Students are expected to attend all lectures and participate in class discussions. This class...
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