FIN 620: Behavioral Finance

There is abundant evidence suggesting that the standard economic paradigm of rational investors does not adequately describe behavior in financial markets. Behavioral Finance examines how individuals' attitudes and behavior affect their financial decisions. This course reviews recent research on possible mispricing in financial markets due to the nature of psychological biases. Moreover the course deals with behavioral finance models explaining investor behavior or market anomalies when rational models provide no sufficient explanations. Topics will include among others overconfidence, prospect theory, heuristic driven biases and frame dependence.

Learning outcomes
Behavioral finance applies scientific research on human and social cognitive and emotional biases. After completing this course, students will be able to better understand economic decisions and how they affect market prices and returns. They will know how behavioral findings are integrated with neo-classical theory.

Necessary prerequisites
FIN 500 or FIN540 or 550 or FIN580 or FIN590 or FIN601 or FIN602 or FIN603 or FIN604 or FIN605 or FIN606 or FIN630 or FIN682 or FIN684 or FIN685 or FIN686 (except for exchange students)

Recommended prerequisites
Every student participating in this course should have completed the 2-semester finance module of the Mannheim Bachelor program (or equivalent courses) and the module Decisions Analysis. The lecture generally assumes basic knowledge in mathematics (calculus, optimization) and statistics (mean, variance, standard deviation).

Forms of teaching and learningContact hoursIndependent study time
Lecture2 SWS9 SWS
Exercise class1 SWS5 SWS
ECTS credits6
Graded yes
Form of assessmentWritten exam (60 min)
Restricted admissionyes
Further information
Performing lecturer
Prof. Dr. Dr. h. c. Martin Weber
Prof. Dr. Dr. h.c. Martin Weber
Frequency of offeringSpring semester
Duration of module 1 semester
Range of applicationM.Sc. MMM, M.Sc. WiPäd, M.Sc. VWL, M.Sc. Wirt. Inf., M.Sc. Wirt. Math.
Preliminary course work
LiteratureBarber, B. M., & Odean, T. (2013). Chapter 22 – The Behavior of Individual Investors. In Handbook of the Economics of Finance (Vol. 2, pp. 1533–1570).
Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053-1128.
Course outlineIntroduction
First part: Market participants (biases, buying and selling decisions, saving decisions)
Second part: Markets (market efficiency, limits to arbitrage, event studies, time-series and cross-sectional return patterns)