Behavioral and Cultural Finance - (F) - Q3

Participation Prerequisites

There are no formal prerequisites. Some basic knowledge in finance is assumed.

Course Content

This course discusses important topics in behavioral and cultural finance, including non-expected-utility theory, heuristics and biases, market anomalies, etc. The goal is to understand various perspectives in the behavioral and cultural finance research and its practical relevance. This course begins with an introduction to foundational finance concepts, examining the Efficient Market Hypothesis and its contrast with the Limits to Arbitrage. It then explores Behavioral Decision Theory, comparing Expected Utility Theory with Prospect Theory and discussing how individuals’ time preferences influence decisions. Moving into the psychological aspects of investment, the course analyzes various heuristics, such as familiarity, representativeness, and anchoring and adjustment, along with their impacts on investment behavior, including overconfidence. Limited attention and sentiment are also considered as factors influencing market dynamics, concluding with an exploration of cultural finance and its role in shaping financial decisions across different cultural contexts.

Intended Learning Outcomes and Competencies

Gain familiarity with foundational theories in behavioral finance, including Expected Utility Theory and Prospect Theory. Analyze how heuristics and biases, such as overconfidence and anchoring, affect investment behavior. Understand how psychological factors, like time preferences and sentiment, impact financial decision-making. Recognize the influence of cultural context on financial decisions and market behavior. Develop the ability to critically evaluate market anomalies and their implications for finance theory. Understand the practical relevance of behavioral and cultural finance in shaping real-world financial strategies.

Instruction Type

Presence

Form of Examination

Literature

Recommended Readings:

1. Lucy Ackert and Richard Deaves (2009), Behavioral Finance: Psychology, Decision-Making, and Markets, South-Western College Publication.

2. Thorsten Hens, Marc Oliver Rieger, and Mei Wang (2020) Cultural Finance: A World Map of Risk and Money. World Scientific.

3. More reading materials will be suggested during the class.