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Swayam

Behavioral Finance and Economic Decision-Making

via Swayam

Overview

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ABOUT THE COURSE:Do you ever wonder why smart people make poor financial decisions? Why investors hold on to losing stocks or avoid saving for retirement even when it’s in their best interest? This course dives into the world of Behavioral Finance, blending psychology with economics to uncover the hidden forces that shape our financial choices.Through real-world examples, interactive lessons, and expert insights, you'll learn how mental shortcuts, biases, and emotions affect investment, spending, and saving behavior. By the end of the course, you’ll be equipped to recognize these patterns and make smarter, more rational financial decisions.Whether you're a student, professional, investor, or simply curious about how people make economic choices, this course will change the way you think about money.INTENDED AUDIENCE:•Undergraduate (UG) and Postgraduate (PG) students in Commerce, Management, and Economics• PhD Scholars pursuing research in Behavioral Economics or Financial Psychology• Working professionals in finance, banking, and investment• Competitive exam aspirants for UGC-NET (Commerce/Management), CFA, and RBI Grade BPREREQUISITES:• Basic knowledge of finance or economics is preferred (not mandatory)• Ideal for students who have completed introductory courses in Microeconomics, Finance, or Psychology• No other specific courses required as a prerequisiteINDUSTRY SUPPORT:• Financial Services & Advisory Firms:Goldman Sachs, ICICI Securities, Kotak Wealth, Morningstar, Groww, Zerodha• FinTech Startups:CRED, ET Money, Paytm Money, Zerodha Varsity (as part of investing behavior training)• Consulting & Research Firms:Deloitte, EY, McKinsey (esp. Behavioral Economics verticals)• Policy Think Tanks & Regulatory Bodies:NITI Aayog, RBI, SEBI (financial inclusion, consumer behavior research)

Syllabus

Week 1:Introduction to Behavioural Finance
  • Concept and evolution of Behavioural Finance
  • Limitations of classical economics and rationality assumptions
  • Importance of integrating psychology into finance
Week 2:Classical Finance Models and Their Limitations
  • Rational Expectations Hypothesis
  • Expected Utility Theory
  • Modern Portfolio Theory, CAPM, EMH
  • Market anomalies and inefficiencies
Week 3:Human Behaviour and Economic Decision-Making
  • Foundations of human behaviour: emotion, perception, cognition
  • Role of motivation and learning
  • Structured vs. unstructured decisions
Week 4:Heuristics and Decision Biases
  • Introduction to heuristics: availability, representativeness, anchoring
  • Cognitive shortcuts and judgment errors
Week 5:Belief Perseverance Biases
  • Cognitive dissonance
  • Conservatism and confirmation bias
  • Representativeness and hindsight bias
Week 6:Information Processing Biases
  • Framing effects
  • Anchoring and adjustment
  • Mental accounting
  • Availability, outcome, recency biases
Week 7:Emotional Biases
  • Loss aversion, overconfidence, status quo
  • Self-control, endowment effect, regret aversion
Week 8:Prospect Theory and Behavioural Decision Models
  • Prospect Theory: reference points, loss aversion, probability distortion
  • SP/A Theory (Security-Potential/Aspiration)
Week 9:Key Contributors to Behavioural Finance
  • Daniel Kahneman and Amos Tversky
  • Richard Thaler and Robert Shiller
  • Bounded rationality and Neurofinance
Week 10:Behavioural Portfolio Theory and Investor Behaviour
  • Behavioural Portfolio Theory (BPT)
  • Investor profiles and psychographics
  • Overconfidence and investor miscalibration
Week 11:Market Anomalies and Behavioural Explanations
  • Size effect, January effect
  • Momentum and reversal
  • Excess volatility
Week 12:Behavioural Crises, Bubbles, and the Way Ahead
  • Case studies: Dot-com bubble, 2008 crisis, GameStop
  • Narrative Economics, Neurofinance
  • Challenges and future of Behavioural Finance

Taught by

Dr. Vikas Kumar Jaiswal

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