Behavioral Finance

2019/2020

Academic Year

ENG

Instruction in English

4

ECTS credits

Delivered at:

Department of General and Strategic Management (Nizhny Novgorod) (Faculty of Management (Nizhny Novgorod))

Course type:

Elective course

When:

2 year, 2 module

Instructor

Porshnev, Alexander

Course Syllabus

Abstract

During the course, students: - gain knowledge about the different psychological phenomena of human, affecting making decisions in a situation of uncertainty; - learn how to analyze situations of uncertainty and assess the influence of factors related to the subjective assessment of the situation, the expectations of the individual, etc .; - gain conducting field experiments skills in the behavioral economics domain. The course features are: - Interdisciplinary nature; - Acquaintance of students with the peculiarities of studying the psychology of decision making in a situation of uncertainty; - The course is taught in English and includes discussions of a large number of articles published in leading journals. The current control of the discipline includes a quiz, homework (conducting a field study of one of the behavioral phenomena), active participation in discussions (graded at each seminar). The final grade for the discipline (grade for intermediate certification) is set during the oral examination, taking into account the results of ongoing monitoring. The rules for grading on intermediate certification are determined by the program of discipline, which is publicly available on the HSE's corporate website (portal).

Learning Objectives

• The aim of the course “Behavioral Finance” is to develop students’ understanding of a behavioral perspective in economics.

Expected Learning Outcomes

• Knowing Key Concepts of Behavoioral Economics
• Can apply behavioral finance concepts and models in particular situation
• Ability to read academic literature devoted to the behavioral prespective

Course Contents

• Topic 1. Heuristics in information processing (Foundations and Key Concepts).
  Foundation of behavioral finance and key concepts: limited cognitive capacity, heuristics, bounded rationality. Differences between traditional and behavioral approaches. The role of the unconscious in financial decisions. Role and properties of heuristics. Main effects: overconfidence and illusion of control; the representativeness and availability heuristic; familiarity bias, disposition effect; anchoring and adjustment; status quo; loss and regret aversion; ambiguity aversion; mental accounting; framing; other behavioral biases. Prospect theory (Tversky, Kahneman, 1979). Cumulative prospect theory (Tversky, Kahneman, 1992). Role of mood and impact of emotions. National culture in financial decisions.
• Topic 3. Contemporary issues.
  Neuroeconomics and neurofinance. Origins of nonoptimal economic behavior, from biological perspective. Results obtained using magnetic resonance imaging, serumstudies, genetic assays, and electroencephalogram in used in experimental economic research. Smart institutions Gode and Sunder (1993). “Zero-intelligent” traders simulation. Psychological Influences on Financial Regulation and Policy. Systematic biases of designers of accounting and financial policy—regulators, politicians, voters, and users: limited attention, omission bias, in-group bias, fairness and reciprocity norms, overconfidence, mood effects and attention cascades, and cultural evolution of ideology. Using textual sentiment in finance. Design of empirical models using text mining. Integration of Data mining, Machine learning, Natural language processing (NLP), Information retrieval (IR) and Knowledge management in financial forecast.
• Topic 2. Heuristics and biases in business decision making (Applications of behavioral economics).
  Efficient-market hypothesis (Fama, 1965), adaptive markets hypothesis (Lo, 2005), and research on market inefficiency (Majumder, 2013). Role of heuristics in enterprise decision making and financing decisions. Behavioral perspective in capital budgeting, dividend policy decisions, loyalty, agency conflicts, and corporate governance. Comparison of two approaches for model mergers and acquisitions: first, assumes that managers are rational and markets are inefficient (Shleifer and Vishny, 2003); second, suppose that irrational managers operating in efficient markets (e.g. Goel and Thakor, 2009). Behavioral biases in individual investor trading: disposition effect; the tendency to trade geographically nearby stocks; and role individual learning in trading. Portfolio choice: Rank-dependent expected utility (Quiggin, 1982; Yaari, 1987) and Cumulative prospect theory (Tversky and Kahneman, 1992). Role of age and experience in financial decisions.

Assessment Elements

• Тест
  Test organized as GoogleForms Quizz, students have to be in class to fill in. Students are able to use Internet during the test.
• Домашнее задание
• Участие в обсуждении статей на семинарах

Interim Assessment

• Interim assessment (2 module)
  0.33 * Домашнее задание + 0.34 * Тест + 0.33 * Участие в обсуждении статей на семинарах

Bibliography

Recommended Core Bibliography

• Ghisellini F., Chang B.Y. Behavioral economics. New York, NY: Springer Berlin Heidelberg, 2018. Retrieved from https://link.springer.com/book/10.1007/978-3-319-75205-1, https://doi.org/10.1007/978-3-319-75205-1

Recommended Additional Bibliography

• Behavioral interactions, markets, and economic dynamics: topics in behavioral economics / под ред. S. Ikeda и др. Tokyo ; New York: Springer, 2016. 669 с. DOI 10.1007/978-4-431-55501-8