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This course/examination is part of the module(s) listed below. Please check the relevant examination regulations to determine whether a module is classed as a compulsory, elective compulsory, or elective module in your degree program. The learning objectives are given in the module description, which can be viewed by clicking on the module number.

Module number (link to module description) Module title Module coordinator ECTS credits for module
Show details 82-021-VWLECO17-H-0916
Behavioral Finance
Streich, David
5


Course no.: Exam no.:
82-021-VWLECO17-S-VL-0916.20191.001
Course title: Exam title:
Behavioral Finance
Kategorie:
Lecture
Language of lesson:
Englisch
Date:
4/23/2019 - 7/23/2019
Organizer:
Wirtschaftswissenschaftliche Fakultät
Lecturer: Examiner:
Wiederhold Simon
Exam type:
Exam mode:
Max. number of participants:
0 unlimited
Type of studies:
BSc BWL
Learning objectives:
- Behavioral finance uses insights from psychology to understand how human behavior influences the decisions of individual and professional investors, markets, and managers. Some decisions are simple, day-to-day choices, such as how hard we are going to study for the next test, or what brand of soda we are going to buy, but others significantly impact our financial wellbeing, such as whether we should buy a particular stock, or how we should allocate our money among various investment funds. The purpose of this lecture is to present what we have learned about financial decision-making from behavioral finance research.
- Students will refresh the foundations of modern finance: expected utility theory, asset pricing (CAPM), the efficient market hypothesis, and agency relationships.
- Students will become aware of the inability of these standard tools to account for various paradoxes and anomalies, leading to the genesis of behavioral finance as reflected in prospect theory. Students will be provided the theoretical foundation of this concept.
- Students will learn the psychological foundations of Behavioral Finance: cognitive limitations and heuristics, overconfidence, and emotion.
- Armed with this psychological background, students will learn how psychology impacts financial-decision making at the level of the individual. For instance, the lecture will investigate the extent to which the faulty use of heuristics leads to suboptimal financial decision-making (e.g., familiarity bias can lead to excessive domestic and local investment; availability bias pushes people into concentrating investments in securities where information is freely available).
- Students will become aware of the behavioral foundations of some central stock-market puzzles. For instance, in 1987 the Dow Jones fell by almost one quarter without any apparent reason. In this context, the recent financial crisis will also be discussed.
- Students will also learn how psychological biases have the potential to impact the behavior of managers. The lecture will discuss a heuristic model, which shows that rational managers in a world with irrational investors have conflicts between short-run and long-run goals. These conflicts can lead to choices that maximize price rather than value. Moreover, the lecture will also investigate with the potential for suboptimal financial decisions by corporate decision-makers and entrepreneurs. Students will also gather insights into Behavioral Controlling, that is, how irrational behavior affects controlling decisions.
- A guest lecture with PwC representatives will familiarize students with the behavior and thinking of various stakeholders (banks, investors, employees) when a firm tumbles into crisis. Based on the insights from this lecture, students will themselves develop strategies to rescue crisis-laden firms in a case study.
- Finally, students will gain insights into neurofinance. Neurofinance researchers use neurotechnology to examine how the brain behaves while a person is making financial decisions. Potential insights include information regarding which kinds of responses are controlled and which are automatic.
Content/topics:
- Foundations of Neoclassical Finance
- Expected Utility Theory
- Asset Pricing, Market Efficiency, and Agency Relationships
- Theoretical Foundations of Behavioral Finance
- Prospect Theory
- Framing, and Mental Accounting
- Psychological Foundations of Behavioral Finance
- Heuristics and Biases
- Overconfidence
- Investor Behavior
- Implications of Heuristics and Biases for Financial Decision-Making
- Implications of Overconfidence for Financial Decision-Making
- Individual Investors and the Force of Emotion
- Market Outcomes
- Behavioral Explanations for Anomalies
- Do Behavioral Factors Explain Stock Market Puzzles?
- Corporate Finance
- Behavioral Corporate Finance and Managerial Decision-Making
- Behavioral Controlling
- Case Study PwC
- Neurofinance and the Trader’s Brain
Recommended prerequisites:
Basic knowledge in microeconomics and finance
E-learning offer (URL):
Literature:
- Main reading
- Ackert, Lucy F. and Richard Deaves (2010). Behavioral Finance Psychology, Decision-Making, and Markets. Cengage Learning.
- Further readings
- Burton, Edwin and Sunit Shah (2013). Behavioral Finance: Understanding the Social, Cognitive, and Economic Debates. Wiley.
- Daxhammer, Rolf J. and Máté Facsar (2012). Behavioral Finance. UVK Verlagsgesellschaft mbH. (in German)
Teaching and learning formats/course types:
Registration from… to:
3/12/2019 -
Last possible date of deregistration:
Status:
Closed
Comments:
Room:
Scheduled event/examination dates 
Date / Time Room Lecturer Comment
Tue 23.04.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 30.04.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 07.05.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 14.05.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 21.05.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 28.05.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 04.06.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 18.06.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 25.06.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 02.07.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 09.07.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 16.07.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
Tue 23.07.2019 16:15 - 6:00 PM NB-Z01 Wiederhold, Simon
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