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Behavioural Finance

The human factor in finance

Name of the minor: Behavioural Finance
Code: MINFEW12
Teaching language: English
Offered by: Erasmus School of Economics (ESE); BE, Finance

Other programmes which are contributing
to the minor:

not applicable
Access:

See admissions matrix

Content

The minor behavioural finance combines the psychology behind human decision making with finance. After a general introduction about human decision making, we study the real-life effects of psychological biases in two specific situations. First, we consider corporate decision making. That is, how do managers behave to maximize the value of the firm? Second, we look into the behavior of investors. To be more specific, how are buy and sell decisions affected by psychological factors? The topics are supported by guest lectures from leading practitioners and academics. In the previous years, speakers were included from McKinsey, Kempen, AFM, and more.


Learning objectives:

The goal of this minor is to provide a basic non-technical understanding of the main issues in behavioural finance, and to make clear how and why it deviates from traditional finance. It first and foremost provides an introduction into the biases (i.e., deviations from rationality) in human decision making. Subsequently, in order to provide a benchmark for non-economics students, we provide a crash-course in traditional finance. Finally, we use behavioural insights to understand the many phenomena in the field of investments and corporate finance that are not well understood by traditional finance.

Organization

Maximum number of students that can participate in the minor: not applicable
Minimum number of students that can participate in the minor: not applicable


Overview courses:

Week / Day Monday Thursday Friday
1 Financial Decision Making & Biases

Guest

lectures

2
3 Introduction to Finance
4 Behavioral Corporate Finance
5
6 Behavioural Investments
7
8 Exam

Note: "Introduction to Finance" is intended for non-ESE students only! Days of the week are preliminary.

Module 1: Financial Decision Making & Biases

  • Content: Traditional theories in the field of finance are mostly based on the notion that investors and managers are rational. Research over the past decades has shown that their actual behaviour systematically deviates from rational norms. This module provides an introduction to the bounded rationality of individuals when they make financial decisions. We will discuss the Nobel-prize winning Prospect Theory that describes how people make choices that involve risks, and examine the most prominent evidence from psychology on biases that arise in individual decision making, such as when assessing the likelihood of events.
  • Teaching method: plenary lectures
  • Teaching materials: We will provide a reader with selected articles for all modules. In addition, students are to download material themselves.
  • Contact hours: 12 (2 weeks, 2 x 3 hours per week)
  • Programme offering the module: ESE (Dr. Martijn van den Assem)

Module 2: Introduction to Finance

  • Content: 'Introduction to Finance' (for non-ESE students only) provides a basic understanding of traditional finance concepts. As such, it explains the normative background against which the non-traditional behavioural finance concepts are put. The module consists of two main parts. The first part deals with corporate finance or the way companies are financed and valued. The second part deals with investments and market efficiency. How should a portfolio of stocks, optimally, be formed? Central in both parts is the notion of "homo economicus", or rational optimizing agent.
  • Teaching method: plenary lectures
  • Teaching materials: We will provide a reader with selected articles for all modules. In addition, students are to download material themselves.
  • Contact hours: 6 (1 week, 2 x 3 hours per week)
  • Programme offering the module: ESE (Dr. Martijn van den Assem)

Module 3: Behavioural Corporate Finance

  • Content: The module ‘Behavioural Corporate Finance’ starts out with the basic concept of value creation: what is it, how can it be measured, and why is it important? From this framework, the module turns to the question of how management can try to improve (create) company value, and which behavioural (and other) factors prevent managers from achieving the firm’s full valuation potential. This process will be illustrated by numerous real life examples.
  • Teaching method: plenary lectures
  • Teaching materials: We will provide a reader with selected articles for all modules. In addition, students are to download material themselves.
  • Contact hours: 12 (2 weeks, 2 x 3 hours per week)
  • Programme offering the module: ESE (Dr. Willem Schramade)

Module 4: Behavioural Investments

  • Content: The module ‘Behavioural Investments’ applies the concepts from the first module to the area of investments. The module consists of two parts. In the first part, we discuss the so-called market anomalies. The examples where the market is not fully efficient can provide a direct investment opportunity. The second part discusses the typical biases in buy- and sell-decisions by individuals. We look at expectations of investors and their subsequent decisions. Recognizing biases in your own behavior can lead to better investment decisions in the future.
  • Teaching method: plenary lectures
  • Teaching materials: We will provide an overview of the relevant articles; these can all be downloaded from the library.
  • Contact hours: 12 (2 weeks, 2 x 3 hours per week)
  • Programme offering the module: ESE (Dr. Remco Zwinkels)

Additional information:

In addition, we plan to have a two-hour guest lecture each week. In total, students therefore have 8 lecture hours per week.

Examination

Method of examination:

There is one exam at the end of the minor. Further, after each module there is a midterm test. With these tests, students can gain a bonus point for the final exam. For non-ESE students, the exam is larger as it contains questions from module 2, Introduction to Finance. The exam solely consists of multiple-choice questions. The final grade for the minor is the grade for the final exam plus the bonus for the midterm tests. There is the option to resit the exam in the summer period.


Feedback:

Students are given the possibility to look into their exam after grading.

Contact information

Contact person:

Dr. Remco Zwinkels
zwinkels@remove-this.ese.eur.nl
Phone: (010) 408 1428
Room: H14-13

Faculty website:

www.eur.nl/ese/students/minor

 


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