Course Behavioral Finance(3 days)

Course outline and objectives
Behavioral finance aims at improving our understanding of financial decisions and how they affect market prices and asset returns, by applying insights from psychology and other behavioral sciences. Traditionally, the finance paradigm seeks to understand financial decisions by building on optimal acting investors and market forces that correct mispricing; that is, it assumes people behave rational. However, abundant evidence, reveals that this traditional paradigm is too restrictive and often gives a poor description of people’s behavior.
We (being people) do not always act in the best way possible. In fact, in many decision situations we make mistakes that result in non-optimal behavior. What are these mistakes (or biases), what are their consequences, how can we recognize them, and how can we prevent them? Using interactive sessions, this course will examine various influential behavioral biases, how sensitive you are to these biases, and their implications for financial markets and decisions, like investments, insurance and housing. Further, participants will acquire a series of skills to identify these behavioral influences in both their own and others’ lives, and considers ways to overcome them in real-life. In addition, the course will also consider how behavioral principles can turn into a profit by studying how behavioral biases affect markets and developing trading strategies based upon them.

Who should attend?
The course is of high interest and relevance for regulators and investment professionals, including private bankers, investment bankers, traders, asset managers, researchers, analysts, pension board members, consultants, economists, and financial advisors, but also for corporate executives, individual investors and high net-worth individuals, who like to know more about Behavioral Finance, its impact on everyday situations and how to use its knowledge to your advance.

Day 1

• What is Behavioral Finance?
• Introducing the traditional finance paradigm
• The building blocks of Behavioral Finance
• Bounded rationality, rules-of-thumb, mental accounting and investor’s portfolios
• Applications to financial decisions and markets

• Main psychological phenomena that influence how people interpret information and form expectations
• Applications to financial decisions and markets
• Investor’s risk, uncertainty, time preferences and its biases
• The effects of mood and emotions
• Applications to financial decisions and markets

• Avoiding the behavioral pitfalls and learning
• The efficient market hypothesis; why would the various behavioral influences market prices?
• Limits to arbitrage
• Behavioral Finance investing
• Final review

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