Behavioral Finance


What drew my attention to Behavioral Finance was a comment by a previous student.

At the end of each semester, students have access to course and professor evaluations from two primary sources. Students use this information to help decide which classes to take.

The first source are the official Haas critiques. Students provide comments and a number grade (out of 7) on the class and professor. The number grades are aggregated and posted on the internal website for students. We see the distribution of grades along with some statistical analysis.

Some students also provide input to on-line unofficial student-led critiques covering both courses and professors designed to help current students select courses. These critiques are comment-based and are free-form in nature. They provide free-form general comments coupled with comments on teaching style and workload.

Combined, these sources enhance the feedback we get from talking to other students about their experiences.

Back to Behavioral Finance.

Reading the comments from the student-led critiques, I came across: “Top class at Berkeley! It’s finance and psychology (and a little applied stats) mixed together. Absolutely fascinating!” The same individual also noted how “Odean is interesting, funny, thoughtful. Very mellow—but does not let students be intellectually lazy. Challenges what people say, in a very nice, humorous way. One of the best up-and-coming professors in the country.” True dat.

Much of the MBA program at Haas has helped me see various things in new ways, and this class is no exception. Terrance Odean’s Behavioral Finance explores the human mind and provides and insightful looks at why investors behave the way they do and how that behavior influences individual investment decisions and the market.
It’s a great compliment to our various other Finance classes as it brings the individual into play.

In Monday’s class, we looked at how much individual investors in Taiwan lose from trading and the disposition to sell winners too early and ride losers too long. The Taiwan section blew me away and the disposition effect was amazing. Sadly, I wouldn’t do justice covering either topic here, so you’ll have to sign up for the course and find out for yourself (although the photo gives you a general idea... individual investors are at the far right). You won’t be disappointed!

Previously, we’ve covered the winner’s curse, bubbles, & IPOs; limits of arbitrage; market efficiency; biases, heuristics, & the individual investor; overconfidence; rational choice & framing of decisions; and more. We also had a guest speaker cover evolution & behavior which turned out to be highly relevant.

Some of the readings are tough… academic journals built around some heavy math more suited for the behavioral science world than the finance world, but they’re fascinating none the less. Thankfully, Odean helps reinforce the readings and provides examples and background information with flair.

There are two versions of the class, a 2 credit and a 3 credit class. This year, the 2 credit version was co-listed with the MFE program and ran during the first 7 weeks of the spring semester while the 3 credit class was co-listed with the EWMBA program and ran throughout the spring semester.

This semester, the 3 credit version meets Monday nights from 6pm to 9:30pm with a 45 minute break at 7:30pm. (I’ll cover the dinner break another week.) Our workload consists of class participation, a few quizzes (designed to make sure we read the assignment), 2 group homework assignments, a midterm, and a final.

—Colin C.

About The Author