30608 - BEHAVIORAL AND EXPERIMENTAL FINANCE
Course taught in English
Go to class group/s: 31
Class 31: KATRIN GOEDKER
To feel comfortable in this course, students should be familiar with basic statistics and basic finance theory.
Some of the most consequential economic decisions people make over their lifetimes are related to investments. Those decisions largely determine their financial situation later in life. Yet, people seem to make systematic investment mistakes – even if these mistakes are associated with large costs. Retail investors in the US and Europe generally hold under-diversified portfolios and invest in costly financial instruments; many people trade too actively while others forego substantial equity returns by not participating in the stock market at all. How investors make decisions is determined by human emotion, biases, and cognitive limitations of the mind in processing and responding to information. This can lead investors stick to bad decisions despite mounting evidence that they were wrong; like a gambler chasing losses. Most importantly, some of the mistakes mentions can be observed in trading behavior of professional / institutional investors as well.
Part 1 Introduction
· Behavioral finance: How investors and markets behave
· Experimental finance: Principles of designing experiments in finance
Part 2 Current topics and applications
· Nudging: Save more tomorrow
· Explaining trading behavior (including the role of subjective expectations, overconfidence, risk appetite, emotions, and attention)
· Exploring market bubbles: What drives bubbles? Can we detect bubbles in foresight?
· Understanding bank runs: Investigating causes, contagions, and preventions
· Finding the optimal financial communication to clients
· Testing the value of financial advice
Part 3 Hands-on experiments
- Illustrate and explain financial decision-making and markets in a psychologically more realistic way than classic finance
- Illustrate and explain how experiments can inform market participants, practitioners, and policymakers
- Apply a psychologically more realistic view on financial decision-making and markets
- Design, run, and analyze experiments studying financial decision-making and markets
- Face-to-face lectures
- Guest speaker's talks (in class or in distance)
- Exercises (exercises, database, software etc.)
- The learning experience of this course is mainly based on face-to-face lectures. Each class is enriched by interactive discussion of how to solve assignment questions.
- Guest speakers' talks may complement the learning experience. The use of external speakers aims at better connecting the body of knowledge covered in the course with real life examples, typically focused on complex cases.
- The interaction between the instructor and students during the discussions and the presentations helps students understand how professionals in the field approach a real-life problem.
|Continuous assessment||Partial exams||General exam|
With the purpose of measuring the acquisition of the above-mentioned learning outcomes, the students’ assessment is based on a groups assignment and a written general exam.
The group assignment can be a report, code, or data work aimed at assessing the students’ ability to apply the analytical tools and knowledge illustrated during the course.
The general exam consist of multiple choice questions and exercises aimed at assessing the students’ ability to apply the analytical tools and knowledge illustrated during the course.
Students who attended at least 70% of classes can take the group assignment.
For students who attended at least 70% of classes and took both group assignment and general exam, the final grade is the maximum between:
- A combination of the grade on the group assignment (weight of 40%) and on the general exam (weight of 60%).
- A 100% weight on the general exam.
For students not attending the grade is entirely determined by the general exam (weight of 100%).
- Statman, Meir (2017). Finance for Normal People: How Investors and Markets Behave. Oxford University Press.
- In addition, I post class notes to complement the textbook.