There is a growing strand of research suggesting that the standard economic paradigm-i.e. the assumptions that investors are fully rational, that markets are efficient and that collective actions are in efficient markets-does not adequately describe behavior in financial markets. Behavioral finance research argues that many facts about asset prices, investor behavior, and managerial behavior are best understood in models and empirical papers where at least some agents are recognized as being not fully rational. In this course, we will explore part of this literature.
In particular, we will focus on understanding the motivations behind the study of behavioral aspects of financial decision-making and of finance as an industry. We will study the limits to arbitrage, investor psychology, some experimental behavioral finance, some behavioral corporate finance and finally, we will focus on topics related to learning and information.
In addition to overviewing some of the most important existing results, you will learn key research capabilities. In particular, you will learn how to read research papers, how to identify the key aspects of a research strategy and how to overview empirical results. You will also participate in a few experiments, and help analyze the results in class.