COURSE NUMBER: EWMBA236F-1*, this course is cross-listed

COURSE TITLE: Behavioral Finance

UNITS OF CREDIT: 3 Units

INSTRUCTOR: Terrance Odean

E-MAIL ADDRESS: odean@haas.berkeley.edu

CLASS WEB PAGE LOCATION (HTTP URL): http://www.odean.org

MEETING DAY(S)/TIME: Mondays, 6:00 p.m. to 9:30 p.m.

PREREQUISITE(S): Core finance course (EWMBA 203)

CLASS FORMAT: lectures and discussion

REQUIRED READINGS: Course reader.

BASIS FOR FINAL GRADE: class participation, two short assignments, midterm, and a final exam

ABSTRACT OF COURSE'S CONTENT AND OBJECTIVES:
The course begins with a discussion of recent, historical, and experimental market bubbles. We then turn to market efficiency and the limits of arbitrage. We discuss heuristics and biases identified by behavioral decision theorists, including overconfidence, attribution theory, the representative heuristic, the availability heuristic, anchoring and adjustment, fairness, hindsight bias, and prospect theory and how these affect the behavior of managers and investors. Managers exaggerate the degree to which they can control risk. They take an inside view of projects resulting in optimistic forecasts, but conservative risk averse decisions. Individual investors trade too much, hold onto losing investments too long, and buy attention grabbing stocks. We examine behavioral theories of market trading volume and asset prices. And we explore behavioral approaches to corporate finance problems. The course consists of lectures and several interactive demonstrations. Grading will be based on class participation, two assignments, a midterm, and a final exam.

BIOGRAPHICAL SKETCH:
Terrance Odean (www.odean.org) is the Willis H. Booth Professor of Banking and Finance at the Haas School of Business at the University of California, Berkeley. He earned a B.A. in Statistics at the University of California, Berkeley in 1990 and a Ph.D. in Finance from the Haas School of Business at the University of California, Berkeley in 1997. He taught finance at UC Davis from 1997 through 2001. As an undergraduate at Berkeley, Odean studied Judgment and Decision Making with Daniel Kahneman. This led to his current research focus on how psychologically motivated decisions affect investor welfare and securities prices. His research has been cited in The Wall Street Journal, The New York Times, The L.A. Times, The Washington Post, The International Herald Tribune, Time, Newsweek, U.S. News and World Report, Barron's, Forbes, Business Week, Smart Money, Bloomberg Personal, Worth, Kipplinger's Personal Finance, and several other publications. While studying for his Ph.D., Odean worked at Wells Fargo Nikko Investment Advisors and IRIS Financial Engineering, and co-owned a seat on the Pacific Stock Exchange.