Behavioral Finance

About this course: We make thousands of decisions every day. Do I cross the road now, or wait for the oncoming truck to pass? Should I eat fries or a salad for lunch? How much should I tip the cab driver? We usually make these decisions with almost no thought, using what psychologists call “heuristics” – rules of thumb that enable us to navigate our lives. Without these mental shortcuts, we would be paralyzed by the multitude of daily choices. But in certain circumstances, these shortcuts lead to predictable errors – predictable, that is, if we know what to watch out for. Did you know, for example, that we are naturally biased towards selling investments that are doing well for us, but holding on to those that are doing poorly? Or that we often select sub-optimal insurance payment plans, and routinely purchase insurance that we don’t even need? And why do so many of us fail to enroll in our employer’s corporate retirement plans, even when the employer offers to match our contributions? Behavioral finance is the study of these and dozens of other financial decision-making errors that can be avoided, if we are familiar with the biases that cause them. In this course, we examine these predictable errors, and discover where we are most susceptible to them. This course is intended to guide participants towards better financial choices. Learn how to improve your spending, saving, and investing decisions for the future.

Who is this class for: This course is intended for anyone who has taken at least one course in economics either in high school or in college, and is interested in how our innate biases affect our financial decision-making.

Created by:  Duke University

• Taught by:  Emma Rasiel, Associate Chair and Professor

  Economics

Language English, Subtitles: Portuguese (Brazilian) How To Pass Pass all graded assignments to complete the course. User Ratings 4.3 stars Average User Rating 4.3See what learners said Coursework

Each course is like an interactive textbook, featuring pre-recorded videos, quizzes and projects.

Help from your peers

Connect with thousands of other learners and debate ideas, discuss course material, and get help mastering concepts.

Certificates

Earn official recognition for your work, and share your success with friends, colleagues, and employers.

Duke University Duke University has about 13,000 undergraduate and graduate students and a world-class faculty helping to expand the frontiers of knowledge. The university has a strong commitment to applying knowledge in service to society, both near its North Carolina campus and around the world.

Syllabus


WEEK 1


Week 1



Welcome to the course! In this first week, we'll look at the classical economic model of consumer choice, which assumes that all of the decisions that we make are sensible, or “rational.” Once we have examined the underlying theory of how people should behave (especially around financial decisions), we will move on to examine how people do behave. We will focus in particular on situations in which we are most inclined to make decisions that appear to defy rational choice axioms.


5 videos, 4 readings expand

1. Video: Welcome to Behavioral Finance
2. Reading: Course Overview
3. Video: Introduction to Classical Economics
4. Reading: Utility of Money
5. Video: Utility of Money
6. Reading: Omission Bias
7. Video: Omission Bias Case Study
8. Video: Expected Utility vs Prospect Theory
9. Reading: Answer Choice Explanations and Correct Answers for Week 1 Quiz

Graded: Week 1 Quiz

WEEK 2


Week 2



Welcome to the second week. In this session, we will discover how our minds are inclined to distort probabilities, and either underestimate or overestimate the likelihood of certain outcomes. We’ll also learn about “heuristic-driven bias”: the tendency to use rules of thumb that simplify the process of making decisions, but can also lead to predictable errors. These biases negatively affect our decision-making far more than we might expect; especially when the outcome of the decision has great significance for us.


8 videos, 6 readings expand

1. Reading: Problems with Probability
2. Video: Correlation and Causation Error
3. Reading: Probability Weighting
4. Video: Probability Weighting
5. Video: Relative Probabilities
6. Reading: The Availability Heuristic
7. Video: The Availability Heuristic
8. Reading: Framing
9. Video: Mental Accounting and Expenditures
10. Video: Loss Aversion
11. Reading: Representativeness
12. Reading: Overconfidence
13. Video: Belief Perseverance and Confirmation Bias
14. Video: Case Study: Belief Perseverance

Graded: Week 2 Quiz

WEEK 3


Week 3



In the final week of the course, we will see multiple examples of how mental heuristics can lead us to make predictably sub-optimal financial decisions, both individually and across the entire financial markets. We will also discuss the many ways in which you can now improve your financial decision-making because of your deeper understanding of the innate biases that have tripped you up in the past!


2 videos, 2 readings expand

1. Reading: Money Management
2. Video: Introduction to Financial Decision Making
3. Video: Benefits of Saving Early
4. Reading: Market Bubbles & Crashes

Graded: Week 3 Quiz