Module description
What is the module about?
While a conventional course in finance teaches the normative and often theoretical assumptions of how financial markets ‘should work’, there are a range of well documented anomalies which means there is value in also enrolling in a finance course which describes empirically how financial markets ‘actually work’. Therefore, the purpose of this course is to help you better understand why people make certain financial choices in a way that systematically contradicts theoretical expectations. More specifically, this module is particularly interested in exploring examples of where conventional theory in finance does not hold and markets appearing to be acting ‘irrationally’.
Consequently, this course will guide you through the development of the field of behavioural finance from the early ground-breaking work of psychologists Daniel Kahneman and Amos Tversky in the 1970s-1980s, to the extensive field that it is today, where we will cover a range of topics relating to seemingly ‘irrational’ financial behaviour, including: spending, investing, trading, retirement planning, wellbeing, and public policy.
In terms of how we will structure this course for you, the lectures will focus on the key theory, with many of the key works leading to Nobel prizes. Here we will make you familiar with many of the most important thinkers in the various avenues of behavioural finance literature with the purpose of highlighting why their research is so important and what it means for you and I seeking to make good financial decisions in business and in life.
While our tutorials will be taught MBA style. Where possible, we will seek to use case studies and genuine business problems and ask you to provide solutions. The tutorials will therefore help us convert our academic knowledge from the lectures into something which we can apply to a range of real-life business questions and challenges. It is therefore crucial that you contribute towards these various debates and discussions in class, as you would in a boardroom.
Should I have studied finance before to take this module?
This module is designed for both those who have studied finance before and those with a more limited background.
Who should do this module?
Anyone with an interest in finance, economics, and psychology.
Provisional Lecture Outline
Lecture 1: Three Models of Economic Analysis
Lecture 2: Heuristics and Biases
Lecture 3: Nudging: The Case For Libertarian Paternalism
Lecture 4: Coursework
Lecture 5: Prospect Theory, Framing and Mental Accounting
Lecture 6: Challenges to Market Efficiency
Lecture 7: Overconfidence
Lecture 8: Financial Bubbles
Lecture 9: Social Forces: Selfishness or Altruism
Lecture 10: Financial Education, Financial Literacy and Financial Wellbeing
Lecture 11: Revision Lecture
Assessment details
50% Examination
50% Coursework
The format of the examination has not yet been confirmed. All students will be expected to sit any remote exams in January, but semester 1 only students will be set an alternative assessment in lieu of any in-person exams.
Teaching pattern
Weekly Lecture
Weekly Tutorial
Suggested reading list
Core Textbook
Ackert, L. and Deaves, R. (2010) Behavioural Finance: Psychology, Decision-Making, and Markets. Mason: Cengage.
Interesting Further Reading:
Halpern, D. (2016) Inside the Nudge Unit: How Small Changes Can Make A Big Difference. New York: Penguin Random House.
Kahneman, D. (2011) Thinking, Fast and Slow. New York: Farrar, Straus, and Giroux.
Lewis, M. (2016) The Undoing Project: A Friendship That Changed Our Minds. . New York: W. W. Norton & Company.
Thaler, R. (2015) Misbehaving: The Making of Behavioral Economics. New York: W. W. Norton & Company.
Thaler, R. and Sunstein, C. (2008) Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven: Yale University Press.