PSYCHOLOGY OF FINANCIAL DECISION-MAKING (a course of 9 lectures)
A common portrayal of financial decision-making is one that interprets all action as rational choice. However, pure rationality strains credulity as a description of how decisions are actually made. I examine the various behavioral strategies that people rely upon to make financial decisions. First, I review psychological research on happiness and well-being, intuitive judgment, belief formation, learning, memory, utility theory, risk attitudes, and choice over time. Key concepts include mental frames, heuristics, loss aversion, willpower, self-control, and conformity. Next, these ideas are illustrated with practical applications to household financial management, entrepreneurship, economic forecasting, trust between financial advisers and their clients, negotiation and decision-making in small groups.
PSYCHOLOGY OF FINANCIAL MARKETS (a course of 9 lectures)
Neoclassical investment theory says that, at all times, market prices equal fundamental value and that asset returns in the cross-section reflect relative exposures to systematic non-diversifiable risk. Despite decades of data analysis, empirical support for this theory remains thin. For instance, capital asset pricing model betas are at best weakly related to returns and there is much unexplained volatility in asset prices. Shareholder trading practices are also difficult to reconcile with the standard theory. Periods of price turbulence, accompanied by heavy trading volume, are followed by periods of relative calm. I study the determinants of asset prices and trading volume. The main emphasis is on decision processes and the behavior of individual and institutional investors.
BEHAVIORAL ASPECTS OF CORPORATE FINANCE (a course of 8 lectures)
I review selected aspects of investment and financing decisions made in corporations, as well as some questions of corporate governance and organizational architecture. I put special emphasis on psychological, sociological and organizational determinants of behavior, e.g., executive hubris, management fads, or bureaucratic inertia. How corporate decision processes shape decision outcomes, good or bad, is the big question.