Behavioral Finance
Master's programme: MSc in Energy and Finance
Behavioral finance specifically explores the impact of psychology, uncertainty (which is not synonymous with risk) and the cognitive biases/forces that impact our decisions. Behavioral finance applies the scientific method (rejecting hypotheses for which there was no supporting evidence) to understand the impact of cognitive forces, including motivation, emotions, impulses, fear, regret, loss aversion, and genuine uncertainty upon financial market outcomes. The objective and purpose of this course is to provide an in-depth discussion of the modern development in Behavioral finance. Both theory and empirical evidence will be discussed. We will review the decision-making process along with the different biases and paradoxes that go with it, learn about the major theories (Prospect Theory and SP/ A Theory), study the formation and burst process of speculative bubbles, and introduce the so-called Behavioral Portfolio Theory (BPT).