This course introduces behavioural finance and reveals the many practical implications of the discipline for investment decision-making and for the capital markets.
It’s useful to start with the definition, though: behavioural finance, and the wider discipline of behavioural economics, is a synthesis of traditional finance or economics and cognitive psychology.
You might ask: Why do we need to bring cognitive psychology into the game?
Yet, the truth is that economics has always been about psychology.
It seeks to understand the choices of economic agents, like savers, consumers, entrepreneurs, and investors, and to use that knowledge to predict other variables like asset prices.
Sadly, the demands placed on modern economists to deliver actionable forecasts to policymakers and to investors had left them little time to ponder the vagaries of the human minds behind the label ‘economic agent’.
Instead, the behavioural preferences of those actors were simply assumed away. But that didn't mean that psychology disappeared from economics.
It simply meant that bad psychology replaced good psychology.
The behavioural finance discipline, therefore, seeks to redress this imbalance.
It takes evidence drawn from decades of research in cognitive psychology to improve our assumptions about the behaviour of economic agents, and so, improve our forecasts.
A guide to an investment decision
The course’s unique structure guides attendees through the various stages of an investment decision.
- It looks at the way we perceive information that goes into those decisions, how we understand it and attach weight to it.
- It reveals the mental processes that are activated once we experience gains or loss. Of course, the search for information doesn’t end once we are engaged.
- It continues over the entire life of the engagement (often, even beyond its life). So, attendees learn how the win-loss situation impacts the subsequent information search.
- The course delivers practical, evidence-based guidance for individual-level investment decision-making at each stage.
- It also explores the implications of systematic investor behaviour at the aggregate level.
Attendees will, therefore, acquire the skills to improve their actions and to predict the impact of investor behaviour in the capital markets.