Neoclassical microeconomics makes a sizeable number of assumptions that are at odds with empirical observations. The efficient market hypothesis in finance is grounded in neoclassical microeconomics and argues in favour of market activity generating prices consistent with intrinsic value. In other words, neoclassical orthodoxy claims that markets get prices right. The course in behavioral economics and finance explores alternatives to the hypothesis of neoclassical microeconomics that homo sapiens are strictly rational (or that they make decisions based on rational expectations) and subsequently, through some time constant iterative process, generate correct market prices. 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.
According to Traditional Finance, investors are, for the most part, rational “wealth maximizers.” This theory says man acts only in a way that maximizes his returns and minimizes his risks. In contrast, Behavioral Finance attempts to understand and explain actual investor behavior versus theories of investor behavior.
Emotion and deeply ingrained biases influence our decisions, causing us to behave in unpredictable or irrational ways. In fact, some may consider it to be predictably irrational. Behavioral finance is a relatively new field that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions.
This program will benefit all professionals interested in learning how behavioral finance helps to explain the new financial and competitive scenarios in which companies operate, and how it impacts their decision making.
The course is aimed at managers, board members, family business owners, as well as all professionals who interact with them (e.g., asset managers, private and investment bankers, recovery and restructuring managers, bankers and managers in general, and financial planners).
Investment Decisions and Behavioral Finance is designed for senior decision makers in the investment community.
Recommended applicants include:
• Investment company presidents
• Chief investment officers
• Investment strategists
• Portfolio and fund managers
• Pension plan executives
• Senior analysts and directors of research
• Senior corporate executives
• High net worth private investors
• Pension fund administrators
Past participants of similar programs and practitioners of behavioral finance should consider attending as the curriculum is updated.