BEHAVIOURAL FINANCE

The course is a core activity of the Degree program in Economics and Finance and complements other courses in Finance in understanding the drivers and mechanisms that characterize financial markets. By foccusing on understaindg the roots and implications of seemingly irrational individual decision-making in financial contexts, the course contributes to strenghtening . Behavioural finance is a relatively new field that is undergoing significant momentum, both at theoretical and at practical level. This course provides the theoretical tools to understand the reasons, the strenghts and the limits of behavioural finance for the practice of portfolio management and financial advisory.

Upon completion of the course students will have a broader understanding of the complex and multi-dimensional scope of financial decision-making. The basic knowledge of financial market characteristics and basic properties already developed in other courses will be complemented by the broader understanding of the patterns of human decision-making under risk and uncertainty.
In terms of knowledge and understanding, the students will:
- understand the limitations of traditional models of financial decision-making;
- understand how alternative models of financial decision-making have been developed starting from behavioural empirical evidence;
- understand the role of emotions in financial decision-making;
- learn about the alternative theories underlying heuristics and understand the rationale behind them.
Regarding the application of knowledge and understanding, the students will:
- learn to relate behavioural theories to real-life empirical evidence;
- understand how behavioural theories have informed and shaped portfolio theories and portfolio management;
- understand how modern financial advisory can be aided by behavioural findings.
In terms of judgement abilities, the students will:
- learn to compare critically alternative explanations of empirical evidence from financial markets, and to discuss solutions in class discussions.

Students are expected to have a basic knowledge of financial markets and their functioning and on individual decision-making, in particolar what concern the role of utility functions.

1. Introduction: what is behavioural finance?
2. Thinking under risk: behavioural biases and heuristic behaviour
3. Choosing under risk: from Expected Utility Theory to Prospect Theory
4. Emotions and psychology of choice under risk
5. Anomalies in financial markets
6. Traditional and behavioural financial advisory

Selected chapters from
C. Ackert, Deaves, Behavioral Finance: Psychology, Decision-Making, and Markets, Cengage, 2009

Selected articles may be suggested for each topic.

The final evaluation will take the form of a written exam, composed by two short open-ended questions and two essay questions. The open-ended questions are targeted at assessing the knowledge of precisely defined issues/topics among those discussed in class, while the essay questions address broader topics/issues and are targeted at assessing whether the students has developed the ability to understand the implications of behavioural finance for the practice of financial decision-making. The open-ended questions will be graded on a 0-5 scale each, while the essay questions on a 0-10 scale. The attribution of the “cum laude” is at the discretion of the instructor, provided that all questions have received the maximum evaluation. No textbooks, class or personal notes, slides, cell phones or other devices are allowed during the exam.

The course will be characterized by frontal lectures by the instructor and guided class discussions. The frontal lectures will be used to present theories and the required material and discuss the most important implications of the theory for the practice of behavioural finance. The guided class discussions will be used to further the understanding of the material presented and the required readings. Participation in class discussions is not graded, but strongly advised.

English

Accessibility, Disability and Inclusion
Accommodation and support services for students with disabilities and students with specific learning impairments

Ca’ Foscari abides by Italian Law (Law 17/1999; Law 170/2010) regarding support services and accommodation available to students with disabilities. This includes students with
mobility, visual, hearing and other disabilities (Law 17/1999), and specific learning impairments (Law 170/2010). If you have a disability or impairment that requires accommodations (i.e., alternate testing, readers, note takers or interpreters) please contact the Disability and Accessibility Offices in Student Services: disabilita@unive.it.

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