AEM 5232

Behavioral Finance II

Course Description

Course information provided by the 2026-2027 Catalog.

The traditional framework for thinking about financial markets assumes that all market participants are fully rational. The past four decades have seen the emergence of an important new paradigm, behavioral finance, which argues that many financial phenomena are the result of less than fully rational thinking. Behavioral Finance Part I and Part II collectively provide a comprehensive discussion of the field. Specifically, we organize our discussion along two dimensions: a “column” approach and a “row” approach. The column approach focuses on discussing market phenomena that cannot be explained by the traditional framework; for each phenomenon, we discuss potential psychological biases that can make sense of it. The row approach focuses on discussing psychological biases that humans exhibit; for each bias, we discuss a range of market phenomena that it can explain.

Forbidden Overlaps AEM 4230, AEM 5230, AEM 4232, AEM 5232, HADM 4232, HADM 6232

Enrollment Priority Enrollment limited to: MPS-AEM students.

Last 4 Terms Offered (None)

Learning Outcomes

• Design profitable trading strategies that predict future returns on risky assets.
• Measure the quantitative impact of psychological biases in investment and managerial decisions.
• Integrate concepts from bounded rationality into financial decision making.
• Combine traditional knowledge of behavioral economics with recent development of LLMs.

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