Behavioural Finance

Financial decision-making is an integral part of our daily life, involving choices related to investments, insurance, retirement planning, and more. Traditional models of decision-making typically assume “rationality” in the sense that humans make optimal (or close to optimal) choices based on their preferences. However, research has shown that these models fail to fully capture how individuals actually make decisions or accurately predict their choices. Behavioural Finance seeks to bridge this explanatory gap by exploring the psychological, cognitive, and emotional factors that influence financial decisions, particularly when they deviate from classical decision-making models. This subject introduces students to key concepts and trends in this interdisciplinary field, which integrates insights from economics, psychology, neurobiology and computer science, to problems in finance. Through this subject, students will gain an understanding of the mechanisms underlying human decision-making and how these mechanisms contribute to departures from optimal behavior. The subject also covers methodologies for analysing financial behaviour, providing a deeper perspective on the complexities of real-world financial decision-making.

• 1Acquire knowledge about formal models of decision-making in finance
• 2Be familiar with the role of experiments in behavioural finance
• 3Gain insight into human decision-making in the context of financial problems
• 4Critically evaluate various mechanisms in explaining human behaviour in financial decision-making