Foundations Of Behavioral Finance

This mini-course is designed to set a solid foundation for better understanding the topic of behavioral finance.

What you’ll learn
Understand the differences between classical financial theory and behavioral finance.
Learn about the various ways individuals violate rational decision-making.
Apply aspects of prospect theory to make better financial decisions.
Take notes through the provided abbreviated notes and complete exercises and quizzes to demonstrate knowledge.

Requirements
Whether you are new to finance or a financial professional looking to continue your education, this course is for you!

Description
In this course, you will learn:The differences between classical financial theory and behavioral finance. We outline why behavioral finance illustrates the decisions that people actually make compared to the financial decisions that individuals “should” make (depicted by expected value and utility functions).Various ways individuals violate rational decision-making. These ways include: loss aversion, framing effects, and risk domain specificity.Understanding prospect theory and knowing how to formulate its components, including loss aversion, diminished value sensitivity, and reference point dependence.How framing and mental accounting factor into the decision-making process.Applying aspects of prospect theory to make better financial decisions. From horse betting biases to the disposition effect, we learn about how prospect theory can be applied in various domains.This course includes nearly 3 hours of lectures and included all course notes – both students notes and full instructor notes. Each of the three sections include a quiz at the end of each section for students to demonstrate their learning. Additional exercises (and solutions) are included as well.Understanding these key concepts will give students the ability to better understand themselves, but also the world around them, whether its family/friends, colleagues or clients.Whether you are new to finance or a financial professional, this course is for you!

Overview
Section 1: Foundations of Behavioral Finance: Part 1 – Expected Value to Prospect Theory

Lecture 1 Introduction to Behavioral Finance and Neoclassical Assumptions

Lecture 2 St. Petersburg Paradox and Intro to Utility Function

Lecture 3 “Deal or No Deal” – Expected Utility Function in Action

Lecture 4 Introduction to Our Risk Behaviors

Lecture 5 How Framing Affects Our Decisions

Lecture 6 Risk Domain Specificity

Lecture 7 What Causes Our (Financial) Behaviors?

Section 2: Prospect Theory, Framing and Mental Accounting

Lecture 8 Prospect Theory Basics

Lecture 9 Prospect Theory Utility Function and the Four-Fold Pattern of Risk

Lecture 10 Applying Prospect Theory to Financial Decision-Making (& Integration vs. Segrega

Lecture 11 Framing and it’s Effect on Our Decisions

Lecture 12 Mental Accounting

Section 3: Applications of Learning

Lecture 13 Application of Ultimatum, Dictator, and Trust Games

Lecture 14 Homo Economicus Vs. Altruism

Lecture 15 Applications of Prospect Theory

Lecture 16 Disposition Effect

Section 4: Exercises and Solutions

Lecture 17 Part 1 Exercises and Video Solutions

Lecture 18 Part 2 Exercises and Solutions

Individual’s interested in learning more about finance.,Financial professionals seeking to extend their understanding of finance.