SEMESTER-II

Behavioral Finance 60 Hours

Learning Objective

1.The main objective of this subject to provide the knowledge of Introduction to Behavioural
Finance.

2. It includes Belief Perseverance Biases.

3. It also describes Information Processing Biases.

4. This subject also provides the knowledge of Emotional Biases.

5. It also helps students to gain knowledge of Application of Behavioural Finance to Asset

Allocation.

6. It includes Behavioral Investor Types.

Learning Outcomes: After the completion of the course, Students will be able to

1. Explain the Role of Behavioural Finance in Creating a Successful Advisory Relationship.

2. Outline the Description and Practical Application of Belief Perseverance Biases and
Processing Biases.

3.Define the Diagnostic Testing and Advice of Emotional Biases

4. Highlight the Best Practical Asset Allocation.

5. Describe the Behavioral Investor Types.

UNIT I INTRODUCTION TO BEHAVIOURAL FINANCE

What is Behavioural Finance? – The Big Picture, Standard Finance v/s Behavioural Finance,
The Role of Behavioural Finance in Creating a Successful Advisory Relationship; The
History of Behavioural Finance – Historical Perspective on the link between Psychology
and Economics, Modern Behavioural Finance, Psychographic Models used in Behavioural
Finance; Introduction to Behavioural Biases – Definition and Categorization, Differences
between Cognitive and Emotional Biases.

UNIT II BELIEF PERSEVERANCE BIASES

Cognitive Dissonance Bias, Conservatism Bias, Confirmation Bias, Representativeness Bias,

Illusion of Control Bias, Hindsight Bias – Description, Practical Application, Research
Review, Diagnostic Testing and Advice.

UNIT III INFORMATION PROCESSING BIASES

Mental Accounting Bias, Anchoring and Adjustment Bias, Framing Bias, Availability Bias,
Self-Attribution Bias, Outcome Bias, Recency Bias - Description, Practical Application,
Research Review, Diagnostic Testing and Advice.

UNIT IV EMOTIONAL BIASES

Loss Aversion Bias, Overconfidence Bias, Self-Control

Bias, Status Quo Bias, Endowment Bias, Regret Aversion Bias, Affinity Bias - Description,
Practical Application, Research Review, Diagnostic Testing and Advice.

UNIT V APPLICATION OF BEHAVIORAL FINANCE TO ASSET ALLOCATION AND

CASE STUDIES (4 HRS)
Application of Behavioural Finance to Asset Allocation, Best Practical Allocation, Guidelines
for Determining Best Practical Asset Allocation, Investment Policy and Asset Allocation,
Case Studies.

UNIT VI BEHAVIOURAL INVESTOR TYPES

Behavioural Investor Type Diagnostic Process, Background of the Development of Behavioural
Investor Types, Psychographic Models of Investor Behaviour, Early
Psychographic Models, The Behavioural Alpha Process – A Top-Down Approach,
Behavioural Investor Types – Preserver, Follower, Independent, Accumulator.

Books for Reference:

1. Michael M Pompian, Behavioural Finance and Wealth Management, Wiley Finance.
2. Daniel Kahneman, Thinking, Fast and Slow, Penguin Books.
3. Hersh Shefrin, Beyond Greed and Fear, Oxford University Press.