FIN 406 Behavioral Finance Select Term:
Behavioral finance is a subfield of behavioral economics that studies the effects of psychological, cognitive and cultural factors on the financial decisions of agents. Classical finance theory assumes that agents in financial markets are fully rational, in that they maximize their expected utility with every decision they make. As a result, classical theorists believe that markets are efficient, and prices reflect all information available. However, there have been many studies documenting anomalies in markets that contradict with the efficient markets view and cannot be explained by the existence of fully rational investors. Behavioral finance tries to explain these anomalies and investors biases by combining tools and concepts from psychology and financial economics. This course aims to improve our understanding of the financial decision making by introducing psychologically more realistic frameworks that allow agents to be less than fully rational.