Behavioral Finance: Psychology, Decision-Making, and Markets, 1st Edition

Lucy Ackert, Richard Deaves

Copyright 2010
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Behavioral Finance: Psychology, Decision-Making, and Markets 1st Edition by Lucy Ackert/Richard Deaves

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Overview

Now you can offer your students a structured, applied approach to behavioral finance with the first academic text of its kind--Ackert/Deaves' BEHAVIORAL FINANCE: PSYCHOLOGY, DECISION MAKING, AND MARKETS. This comprehensive text--ideal for your behavioral finance elective-- links finance theory and practice to human behavior.

The book begins by building upon the established, conventional principles of finance that students have already learned in their principles course. The authors then move into psychological principles of behavioral finance, including heuristics and biases, overconfidence, emotion and social forces.

Students learn how human behavior influences the decisions of individual investors and professional finance practitioners, managers, and markets. Your students gain a strong understanding of how social forces impact people's choices. The book clearly explains what behavioral finance indicates about observed market outcomes as well as how psychological biases potentially impact the behavior of managers. Students learn the implications of behavioral finance on retirement, pensions, education, debiasing, and client management. This book is unique as it spends a significant amount of time examining how behavioral finance can be used effectively by practitioners today.

The book's solid academic approach provides opportunities for students to utilize theory and complete applications in every chapter. A wide variety of end-of-chapter exercises, discussion questions, simulations and experiments reinforce the book's applied approach, while useful instructor supplements ensure you have the resources to clearly present theories of behavioral finance and their applications.

Meet the Authors

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Lucy Ackert

Lucy F. Ackert is Professor of Finance in the Michael J. Coles College of Business at Kennesaw State University and Visiting Scholar at the Federal Reserve Bank of Atlanta. Dr. Ackert holds a Ph.D. in financial economics from Emory University. Her research interests include individual's use of information and financial market reaction to information. Dr. Ackert has published numerous articles in refereed journals including the American Economic Review, Journal of Accounting Research, and Journal of Finance.In 1993 Dr. Ackert received a Smith Breeden Prize for Distinguished Paper in the Journal of Finance. Her research has received funding from various organizations including the Center for the Study of Futures Markets at Columbia University, the Chicago Board of Trade, the Canadian Investment Review, and the Social Sciences and Humanities Research Council of Canada. In 2008 Dr. Ackert received the Kennesaw State University Distinguished Graduate Scholarship Award.Dr. Ackert has previously taught at Emory University, Berry College, and Wilfrid Laurier University. She has taught a range of courses for graduate as well as undergraduate students, including Behavioral Finance, Corporate Finance, Futures and Options Markets, Financial Institutions, Cases in Finance, Introduction to Statistical Methods, and Microeconomics.

Richard Deaves

Richard Deaves is Professor of Finance at the DeGroote School of Business, McMaster University. There and elsewhere he has taught a variety of courses, including Behavioral Finance, Security Analysis and Portfolio Management, Derivatives, and Applied Investment Management.In addition to McMaster, Dr. Deaves has visited at the University of Toronto, Concordia University, Thammasat University, Tsinghua University, and others.Dr. Deaves research publications have appeared in numerous journals, such as the Journal of Financial and Quantitative Analysis, the Journal of Banking and Finance, and the Journal of Monetary Economics. His main research interests have included behavioral finance, investor knowledge and pension fund design, experimental asset markets, investment fund performance, fixed-income return enhancement, modeling and predicting interest rates, pricing and hedging futures, and the relationship between financial markets and the macroeconomy.Additionally, Dr. Deaves has consulted for large and small private firms as well as government agencies. He has also provided expert testimony in a number of legal proceedings. He has previously published two books: What Kind of an Investor Are You? (Insomniac Press) and Canadian Finance: A Concise Introduction (DFS Press).

Features

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TABLE OF CONTENTS REFLECTS BOOK'S COMPREHENSIVE APPROACH: As a glance at this book's rich Table of Contents reveals, the authors begin with conventional finance principles before showing how these principles are sometimes contradicted by survey evidence. The authors then present the psychological principles of behavioral finance, including heuristics and biases, overconfidence and emotion. The book details how these biases cause problems for individual investors and, more controversially, lead to less than ideal market outcomes.
INTRODUCTION CHAPTER SETS THE STAGE FOR CONTENT THAT FOLLOWS: The book's introduction clearly establishes the text's key themes and structured academic approach, while demonstrating how the authors link finance theory and practice to human behavior. The book remains carefully connected to conventional finance that your students learned in their principles course.
CHAPTER 5, "HEURISTICS AND BIASES" EXPLORES COGNITIVE LIMITATIONS AND USE OF HEURISTICS: This unique chapter emphasizes how people make decisions and where biases may be revealed. Students explore cognitive limitations, from faulty and selective perceptions and memories to inattention and frame influence. The book demonstrates how complicated problems are simplified using heuristics designed for this purpose and closely examines various classes of heuristics.
APPLIED APPROACH DEMONSTRATES HOW FINANCIAL PROFESSIONALS CAN EFFECTIVELY USE BEHAVIORAL FINANCE: Future and current financial professionals can benefit from this book's unique emphasis on how behavioral finance can be and actually is used successfully today by practitioners.
END-OF-CHAPTER DISCUSSION QUESTIONS AND PROBLEMS PROVIDE OPPORTUNITIES TO APPLY CONCEPTS: As a unique, first-of-its-kind academic approach, this book emphasizes the applicability of what students are learning with a variety of end-of-chapter exercises and discussion questions, simulations and experiments. In addition, a student survey at the beginning of the source demonstrates to students the extent to which they themselves are subject to various behavioral biases.
CHAPTERS HIGHLIGHT THE IMPACT OF BEHAVORIAL FINANCE ON MANAGERS AND FINANCIAL PROFESSIONALS: Your students learn how psychological biases potentially impact the behavior of managers; what behavioral finance indicates about observed market outcomes; and the implications of behavioral finance for retirement, pensions, education, debiasing, and client management.

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Introduction.
Introduction.
SECTION I: CONVENTIONAL FINANCE, PROSPECT THEORY AND MARKET EFFICIENCY.
1: Foundations of conventional finance: Expected utility.
2: Foundations of conventional finance: Asset pricing theory and market efficiency.
3: Prospect theory, framing and mental accounting.
4: Limits to arbitrage, anomalies and investor sentiment.
SECTION II: BEHAVIORAL SCIENCE FOUNDATIONS.
5: Heuristics and biases.
6: Overconfidence.
7: Emotion.
SECTION III: INVESTOR BEHAVIOR.
8: Investor behavior stemming from heuristics and biases.
9: The impact of overconfidence on investor decision-making.
10: Emotion-based investor behavior.
SECTION IV: SOCIAL FORCES.
11: Social forces: Selfishness or altruism?
12: Social forces and behavior.
SECTION VI: MARKET OUTCOMES.
13: Behavioral explanations for anomalies.
14: Aggregate stock market puzzles.
SECTION V: CORPORATE FINANCE.
15: Irrational markets.
16: Irrational managers.
SECTION VII: RETIREMENT, PENSIONS, EDUCATION, DEBIASING AND CLIENT MANAGEMENT.
17: Understanding retirement saving and investment behavior and improving DC pensions.
18: Debiasing, education, and client management.
SECTION VIII: MONEY MANAGEMENT.
19: Money management and behavioral investing.
20: Neurofinance and trading.