This course provides a broad, up-to-date understanding of behavioral finance in general and its applications to personal wealth management and financial advice in particular.
Behavioral Biases - Why people consistently make certain financial decision-making mistakes? To answer this question, we borrow some insights from neuroscience, cultural finance, and psychology as applied to financial decision-making. This helps us understand why standard financial and economic models make certain predictions about how people should make financial decisions that are routinely and predictably violated. Furthermore, we discuss why certain financial decision-making biases are much easier to be mitigated or avoided than others.
Decision Theory - We take a closer look into issues of decision theory, and how a behavioral framework could better describe various financial phenomena, comparing them with more traditional rational-agent models used in Finance. Then, we discuss behavioral-decision theory applications for a range of investment and wealth management problems. Our focus is on structured financial products that allow for investors' non-standard preferences, misplaced beliefs, and biased decision-making process.
Wealth Management - What comprises good financial advice? In this final module, we take our behavioral framework to financial advice and wealth management, considering the impact of European regulations (MiFID). We show how our knowledge of investors' behavior, their biases, styles, preferences, and other characteristics can help financial professionals to provide better advice for their clients. We examine the role of new technological tools, such as investment robots and investor profilers, in wealth management and financial advice.