Behavioral Finance: Psychology and Financial Markets

 

Audience: Money managers, financial advisors, corporate managers, individual investors
Duration: 4-8 hours  
Location: Miami Business School, University of Miami

Overview

Financial decisions often deal with risk and uncertainty. Unfortunately, human beings are not very good at assessing probabilities. In particular, people are unable to accurately assess probabilities that are close to zero or are slightly below one. In addition, people make mistakes when judging conditional probabilities or joint probabilities. We also have a tendency to look for patterns even in sequences that are truly random. As a result of these weaknesses, we often make decisions that may be perceived as being irrational.

What makes things worse is the fact that learning is slow in this environment because the outcomes are random. Even when we make a good decision, the outcome could be bad just because of chance. And when we make a bad decision, we could get lucky and experience a positive outcome. This type of noisy feedback makes learning difficult.

The goal of this seminar is to use decision-making theory to better understand why investors, money managers, and corporate managers often make suboptimal economic and financial decisions. Do people make mistakes because they try their best and don't know any better? Or, do they deviate from the benchmarks intentionally? And, as a finance person, why should you care? Are there economic costs and benefits associated with these mistakes? 

Specifically, this module focuses on the psychological, social, and cultural determinants of suboptimal investor and managerial behavior. We first identify a variety of behavioral “biases” and then examine the impact of those mistakes for security prices, corporate policies, and aggregate economic outcomes. In addition, the seminar investigates whether the mistakes generate market inefficiencies that can potentially be exploited. At the completion of this seminar, participants should also be able to identify their own investment mistakes and make better financial decisions (e.g., retirement decisions).

In particular, you should be able to:

Faculty


Alok Kumar

Professor Alok Kumar is the Gabelli Asset Management Professor of Finance at the School of Business Administration, University of Miami and a part-time Professor of Finance at the Warwick Business School in the U.K. Previously, he was an Associate Professor of Finance at the McCombs School of Business, University of Texas at Austin, and an Assistant Professor of Finance at the Mendoza College of Business, University of Notre Dame. He was also one of the founding principals and the chief investment officer of Coral Gables Asset Management.  Professor Kumar received his undergraduate degree in Mechanical Engineering from the Indian Institute of Technology at Kharagpur and a PhD in Economics from Cornell University. He also has advanced degrees in Robotics and Management from Dartmouth College and Yale University, respectively.

WBS Distinguished Research Environment

Professor Kumar’s research interests lie at the intersection of finance and psychology. He is an expert in the area of Behavioral Finance, and his work has appeared in top Finance, Accounting, Economics, and Management journals such as the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Journal of Accounting Research, Management Science, Games and Economic Behavior, and The Review of Economics and Statistics. His research has also been covered in the Wall Street Journal, the New York Times, the Washington Post, the Montreal Gazette, Forbes, and SmartMoney. Professor Kumar has served as a consultant for several firms, including the Commonfund, Postnieks Capital Management, Validea, and Bluecrest Capital.


 

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