Lablanc BehavioralFin ModE 2013
Transcript of Lablanc BehavioralFin ModE 2013
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Course aims and description of content
This course goes beyond the rational corporate models used in financial decision-making
and examines how individuals cognitive, neurological, and unconscious processes may
bias and unknowingly influence decisions made by financial managers. The basic
theories and tenets of behavioral finance will be covered with applications to both
corporate finance and invest- ments.
Intended Learning Outcomes
Key (Assessed) Learning Outcomes
On completion of this course, students should understand and be able to do the following:
1. Develop a solid foundation in the major concepts encompassed by behavioral
finance.
2. Identify behavioral effects in themselves and others in the context of financial
decision- making.
3. Understand the role of cultural background within the context of behavioral
finance.
4. Understand managerial decision traps, diagnose managerial biases and
correct them
5. Understand how different investment strategies interact in financial markets
6. Communicate effectively the insights developed in the class.
Supplemental Learning Outcomes
While not assessed, it is anticipated that students will develop the following:
1. Understanding the role of emotion and intuition in managerial decision making
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Teaching and Learning
This course will be presented in lecture and discussion format, with some use of cases
and ex- ercises to demonstrate the application of the principles developed. As such, each
student is expected to come to class fully prepared for every class period. Class content
and discussion builds on the content of assigned reading and preparation and does not
serve as an alternative to individual preparation. We will have occasional classroom
experiments and demonstrations
Method and weighting of assessmentIn this course, students are evaluated by the following means of assessment:
Assignment % of final grade
Paper/Project 30% (group work)
Midterm Exam 30%
Final Exam 30%
Attendance/Participation 10%
Detailed breakdown of each means of assessment:
Assignment Group Project
Weighting (% of final grade): 30%
Learning Outcome(s) Assessed: Overall understanding of material
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Description of Assignment: Each group must write up one of the following:
1. A research paper tying the materials in this
class to a phenomenon not covered in this class
2. A business plan which would utilize
concepts in this class
3. A trading model based on concepts in the
class
4. An experiment that tests ideas in this class
Quality Indicators (how will it
be graded; what constitutes a
good assignment):
Assignment will be evaluated based on quality of
research, viability of proposal, citation and
completeness of trading model or experimentaldesign.
Assignment Attendance and Class Participation
Weighting (% of final grade): 10%
Learning Outcome(s) Assessed: Ability to communicate ideas and questionseffectively
Quality Indicators (how will it
be graded; what constitutes a
good assignment):
Student participation must be high quality, add to
the discussion and pro- voke thought.
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Assessment ExpectationsRegistrars scale of grade points:
A 4.00 C+ 2.33
A- 3.67 C 2.00
B+ 3.33 C- 1.67
B 3.00 D 1.00
B- 2.67 F 0.00
Attendance, Participation and Student Responsibilities
AttendanceStudents are expected to attend all scheduled classes, examinations, class presentations,
simulations, exercises, field research visits, discussion groups, plant visits, lectures, and
special programs. Absences will be excused only in cases when a student misses a class
because of serious illness, serious illness of an immediate family member, or a death in the
immediate family. Decisions on whether an absence qualifies as an excused absence will be
made by the campus dean. To be excused for an absence, a student must submit a request
to the dean's office along with any required documentation. If a campus dean approves a
student's request to be excused for an absence, the dean will notify all affected faculty. In
cases of excused absences, faculty members will be expected to offer make-up or substitute
exercises or exams, where feasible.
An absence for any reason except those qualifying for an excused absence will be
considered an unexcused absence.
Students who miss more than 20% of scheduled classroom/activity hours because of
unexcused absences (e.g. more than two meetings of a 10-meeting course, or more than 4
meetings of a 20-meeting course) will fail the course. Students who miss substantial portions
of a course because of excused absences will receive an Incomplete grade for the course
and will be required to make up missed work or re-take the course.
With the approval of the campus dean, individual Instructors may impose additional and/or
stricter attendance requirements and penalties for tardiness or absence, as they see
appropriate for their courses. Students should carefully read course syllabi to be sure that
they understand the particular expectations for attendance in each course.
If a student misses a class or other required activity, it is his or her responsibility to review,
with classmates, the material covered, and to consult with the Instructor prior to the next
class meeting regarding any possible make-up requirements. In case of illness or absence
due to religious obligations, students must notify the Instructor(s) by email as soon they are
aware of the time conflict. (Note: any make-up work approved by the course Instructor must
be completed either immediately before or immediately after the class session missed. It is
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not acceptable to submit make-up work after the course has ended and/or grades have been
issued.)
Absences count as a zero for that day's class participation.
Classes begin promptly according to the published schedule. It is the responsibility of eachstudent to be in class on time. Classroom attendance will be recorded. To eliminate
disruption, students are requested not to enter or leave the classroom when class is in
session. Furthermore, students are expected to attend all class sessions with their
corresponding cohort and team. Switching cohorts to accommodate class attendance is not
allowed except in the presence of extenuating circumstances and with the prior approval by
the course Instructor and the Registrars Office.
Attending group meetings and participating in the assigned study teams are required
components of the program and are considered an important part of the experiential learning
process. Group member feedback evaluations may be administered by individual Instructors
to assess each team members participation and attendance for group projects.
Maintainingthe LearningEnvironment
Certain behaviors disrupt class, such as a student arriving late, a phone ringing, a student
leaving in the middle of class, etc. Instructors have the authority to decide policies for their
classroom regarding these and similar behaviors that may disrupt the learning environment.
All members of the class are expected to respect the learning environment and the
instructors efforts to maintain it.
Participation
Students are expected to participate orally in class, and in online forums and discussions, in
a critical and evaluative manner; to approach instructor and fellow students with respect and
tolerance; and to actively engage in debate, while avoiding derogatory or inflammatory
comments on the cultures or attitudes of others in the class.
Weeklyworkloadfor each course
The syllabus is based on a total time commitment of approximately 150 hours of work per 3-
credit course, combining in-class and out-of-class work. In addition to the hours spent in
class, students should expect group work, reading, studying, writing and preparation to
amount to the stated total by the end of the class. At different times of any given term, theworkload will naturally vary to some extent, and students are expected to make allowance
for this variance in workload.
Academic IntegrityAny work submitted by a student in this course for academic credit must be the student's
own work. If you present, as your own idea, any material copied, paraphrased, or extensively
drawn upon, you are plagiarizingunless you give full citations for your sources. Of course,
you may make full use of ideas, arguments and information obtained from books etc. but you
must make clear in a footnote whose work you are drawing on. Failure to cite your sources
will result in a failing grade for that assignment. In cases of blatant and intentional
misrepresentation, a student will receive a failing grade for the course and may face
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disciplinary action before the Academic Standards Committee, which, in extreme cases, may
result in dismissal from the School.
The Hult policy on plagiarism applies to all work done at the School. Please consult the
Student Handbook for further details.
During examinations, you must do your own work. Talking or discussion is not permitted, nor
may you compare papers, copy from others, or collaborate in any way. Any failure to abide
by examination rules will result in failure of the exam, and may lead to failure of the course
and School disciplinary action.
Accommodating Special NeedsIn order to receive disability-related academic accommodations, students must provide the
Registry before the start of the academic year with a medical letter authorizing special
accommodations and specifying the types of accommodation required. Theaccommodations that are authorized in the letter should then be discussed and agreed upon
with the Dean and the instructor of each course. Accommodations, such as exam
administration, are not provided retroactively; therefore, planning for accommodations at the
beginning of the academic year is necessary.
Special policies on this course
Class Rep: The class must choose a class rep who will communicate with me about
class concerns. Please do not hesitate to contact him or her with any comments,
criticisms, ideas for improving the class, and feedback about what is working or notworking.
Experiments: We will have occasional classroom experiments and demonstrations.
Some of these are in the form of games and auctions that involve REAL MONEY.
Students may win or lose money during these demonstrations. You will be paid your
winnings and you will be expected to pay your losses according to the rules of the game.
Participation in these games is not mandatory! Your grade will not be affected by your
participation or the results of the game.
BE SURE YOU UNDERSTAND THE RULES OF THE GAME BEFORE
PARTICIPATING.
YOU MUST DECIDE WHETHER TO PARTICIPATE BEFORE THE GAME STARTS.
Although the class as a whole will not lose money over the course of the semester,
individual students may be winners or losers.
Ethics: While I encourage you to seek knowledge wherever you find it, do not take
unethical shortcuts in preparing your work..
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Essential reading
There is no text for this class. The course reading will consist primarily of journal articles.These articles will be posted to myCourses. You are responsible for printing them, should
you desire a printed copy. Those articles are listed below in the syllabus and will be
supplemented throughout the semester.
You should try to do as much of the reading as you can prior to class, but you might find
some readings easier after class.
Recommended Reading
Although there is no single good textbook, there are plenty of books about judgment and
decision making (JDM) and behavioral finance that you might find interesting:
Justin Fox, The Myth of the Efficient Market
John Cassidy, How Markets Fail
Kahneman, Thinking Fast and Slow
Andrei Schleifer, Inefficient Markets: An Introduction to
Behavioral Finance
Richard Thaler, The Winners Curse
Hersh Shefrin, Beyond Greed and Fear
Shiller, Irrational Exuberance
Gilovich, Griffin, and Kahneman, Heuristics and Biases
Thaler, Advances in Behavioral Finance, v 1,2
Bazerman, Judgment in Managerial Decision Making
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Course ScheduleThis schedule is provisional. Check back frequently for updates and revisions. I will be
refining the reading list as the semester progresses.
Those readings preceded by an asterisk (*) are required reading.
Class 1 Date JUL 22
Topic Lecture 1: Introduction, Winners Curse, Historical Bubbles
Reading Barberis and Thaler (2001), A Survey of Behavioral Finance
*Science, Crazy Money
Garber, Famous First Bubbles
*http://www.newyorker.com/reporting/2009/10/05/091005fa_fact_c
assidy
Bikchandani, Hirschleifer, Welch, A Theory of Fads
*Devenow and Welch, Rational Herding
*Caginalp, Gunduz, Porter, and Smith, Financial Bubbles, Excess
Cash, Momentum, and Incomplete Information.
*Thaler, Anomalies: The Winners Curse
Class 2 Date JUL 23
Topic Lecture 2: Efficient Markets, Event Studies, and Anomolies
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Class 2 Date JUL 23
Reading Fama, Efficient Markets (1965)
Fama Market Efficiency, Long Term Returns, and Behavioral
Finance (1998)
Rubinstein, Rational Markets; Yes or No? The Affirmative Case
*Lo, Efficient MarketsMotivating Evidence
Gilson and Kraakman, Mechanism of Market Efficiency
*Shiller, From Efficient Markets to Behavioral Finance
Class 3 Date JUL 25
Topic Lecture 3: Noise Traders
Reading *Black, Noise
*Shleifer and Summers, The Noise Trader Approach to Finance
*Lamont and Thaler, The Law of One Price
*Baker and Wurgler Investor Sentiment
*Lee, Shleifer, and Thaler, Closed End Funds
Assignment Pitinos Financial UVA-F-1599
Class 4 Date JUL 26
Topic Lecture 4: Liquidity, and the Limits to Arbitrage
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Class 4 Date JUL 26
Reading Schleifer and Vishny (1997) The Limits of Arbitrage
Jones and Lamont, Short Sale Constraints and Stock Returns
DAvolio The Market for Borrowing Stock
*Harrison and Hong, Disagreement and the Stock Market
*Stout, Inefficient Markets and the New Finance
LaBlanc, In Praise of Rational Investors
Class 5 Date JUL 29
Topic Lecture 5: Biases and Heuristics: Probability Mistakes, Anchoring
and Framing
Reading Hirschleifer (2001) Investor Psychology and Asset Pricing
*Tversky and Kahneman, Judgment under Uncertainty
Tversky and Kahneman, Rational Choice and the Framing of
Decisions
*Whitson, Lacking Control*Kahneman, Maps of Bounded Rationality
Odean (1998) Are Investors Reluctant to Realize their Losses
Odean (1998) Do Investors Trade Too Much?
*Thaler and Rabin, Anomalies: Risk Aversion
*Kahneman, Knetsch, and Thaler, Endowment Effect, Loss
Aversion, and Status Quo Bias
Odean and Barber, The internet and the investor
*Thaler, Mental Accounting Matters
Class 6 Date JUL 30
Topic MIDTERM (1.5 hours)
Lecture 6: Biases and Heuristics: Overconfidence and Behavioral
Corporate Finance
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Class 6 Date JUL 30
Reading Baker, Ruback, and Wurgler, Behavioral Corporate Finance: a
Survey
*Shefrin, Behavioral Corporate Finance*Kahneman and Lovallo, Timid Choices and Bold Forecasts
Class 7 Date AUG 1
Topic Lecture 7: Discounting and Self-Control
Reading *Loewenstein, The Pleasures and Pain of Information,
4*Lowenstein and Thaler, Intertemporal Choice
*Benartzi and Thaler, Heuristics in Retirement
Iyengar, 401k
*Taylor and Brown, Illusion and Well Being
Odean, Volume, Volatility, Price and Profit When all Traders are
Above Average
Class 8 Date AUG 2
Topic Lecture 8: The Biological View
Reading Baker, Ruback, and Wurgler, Behavioral Corporate Finance: a
Survey
*Shefrin, Behavioral Corporate Finance
*Kahneman and Lovallo, Timid Choices and Bold Forecasts
Class 9 Date AUG 5
Topic Lecture 8: The Biological View
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Class 9 Date AUG 5
Reading Camerer, et. al. Neuroeconomics
Robson, Evolution and Human Behavior
McClure, Separate Neural Systems
*Farmer and Geakoplos, The Virtue and Vice of Equilibrium
*Farmer and Lo Frontiers of Finance
*Mauboissin, Complexity
Class 10 Date AUG 5
Assignment FINAL EXAM
Class 11 Date AUG 7
Assignment PROJECTS
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