Through this course, you will learn how individuals and firms make financial decisions, and how those decisions might deviate from those predicted by traditional financial or economic theory. We will explore the nature of these biases and their origins, using insights from psychology, neurosciences and experimental economics on how the human mind works. From these biases, you will be able to examine how the insights of behavioral finance complement the traditional finance paradigm. We also look at the micro and macro biases. Finally, we will explore how these insights describe more complicated topics such as fat tail events and financial crises.
0. Introduction
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Del curso dictado por Indian School of Business
Behavioral Investing
78 calificaciones
Indian School of Business
78 calificaciones
Curso 3 de 5 en SpecializationFinancial Markets and Investment Strategy
De la lección
Behavioral Biases in Finance - Part 1
This module discusses the common behavioral biases experienced by individuals. All the biases are divided into 3 parts. After completing this module you will be able to explain different biases such as Overconfidence, Base rate neglect, Anchoring and adjustment, Cognitive Dissonance, Availability, Self-Attribution and Illusion of Control Bias.
Conoce a los instructores
Vaidya NathanLecturer
Finance
[MUSIC]
Hello, and welcome to the course on behavioral investing.
Investors, be it in Google investors or
institutional investors have never had a more challenging environment to work in.
A lot of investors thought that they had found nirvana in the 2003,
2006 bull market only to find themselves in quicksand in
the subsequent ensuing subprime crisis from 2007 onwards.
Almost a decade later, in today's low return endowment with some countries even
having negative interest rates, investors are continuously peppered with lot of
vexing challenges on managing the investments optimally in the long term.
Given the uncertainty in interest rates and in equity returns in the short term.
In such a demanding adjournment, you don't want to be compounding your problems
by not having the discipline or investment's self control.
As the economist Adam Smith once said, if you don't have discipline and
self control,
the stock market is a very expensive place to find out that you don't have them.
So in current times, investors need a course that can help them
deal with the behavioral and emotional sides of investing.
So that they don't make very costly mistakes in their investment decisions.
And can possibly take necessary corrective action in their behavioral and
emotional aspects of investing, so as to be successful investors.
As a former trader at JP Morgan,
I have had a very good understanding of the behavioral biases of traders.
I've seen traders who go by the adage, heads I win, tails it's chance.
I've also seen traders who claim that they knew all along that markets would tank,
when more possibly they just thought with hindsight that they knew, but
they actually did not.
As they say with hindsight, all of us have 20/20 vision.
Given this very common behavioral biases,
I've discovered some ways of adjusting investment programs for these biases.
So you learn about these methods in this course.
By developing this course on Coursera,
I hope to spread this particular knowledge that I've acquired and
accumulated over the years, to a lot of investors who can benefit from
the insites, given the kind of reach the Coursera had in this day and age.
Up until now, there has not been a course on any platform, for
that matter that can be, that could have been a guide for sophisticated investors
to create portfolios that can account for biased investor behavior.
My hope is that this courses changes that.
This is a course whose knowledge can be used and
implemented in the first shoot of building better investment portfolios.
The reality of today's investment enrollment demands on
better understanding of our behavioral biases and
an awareness of these biases when we are structuring our investment portfolios.
Investors need to focus more accurately on why they make the decisions they do,
and whether their investment behaviors need to be modified or
adapted to the changing investment environment that we are in.
If investors can successfully accomplish this difficult task the payout in terms of
investment returns can be substantial.
As an investor you can pursue investments with a lot more self discipline and
a lot less stress.
So the intent of this cause is to develop a common understanding of behavioral
biases in terms that investors can understand and can essentially
demonstrate those biases, so that they can be identified and corrected.
So it's basically a how to course on behavioral investing,
how to correct for the biases that investors typically have.
The course provides a pretty comprehensive overview of some of the most
commonly found biases complete with a gentle description
of practical application of those biases, diagnostics and advice.
So each lecture will have a discussion on the behavioral biases and
we'll examine ways and means to rectify those biases.
So who can benefit from this course, apart from students who want a general
understanding of the behavioral aspects of investment, the course is mainly meant for
practitioners.
The class of practitioners who may find the course useful include firstly
individual investors.
For those individual investors who have the ability to look introspectively and
assess their behavioral biases, this course is ideal.
A lot of individual investors choose either to do investments by themselves or
rely on financial advisors only for peripheral advice, often find themselves
unable to separate their emotions from investment decision making process.
Now this does not have to be a permanent condition.
By doing this course and learning deep into your investment behaviors as
an inrooted investor, you can indeed learn to modify behaviors and
create portfolios that help you stick with the long term investment programs,
and therefore meet your long term financial goals.
The second category would be Registered Investment Advisors or
RIAs as we call them.
Of all the potential advisors that could include behavioral investing as a part of
the process of delivering wealth management services.
I think that Registered Investment Advisors or
RIAs ARe the best position to do so.
Why?
Because RIAs are typically smaller firms.
They have fewer regulations, a lot lesser regulations than other advisors.
I think RIAs can ask clients questions like,
how do you feel about this particular portfolio?
If I change our allocation to a more aggressive portfolio position or
how might your behavior change?
A lot of other type of devices can not and will not ask these type of questions for
fear of regularity or other matters such as pricing,
investment choices or for other reasons.
So IRAs are best positioned to learn from this course and
the clients get benefit from that.
The third category are the independent financial advisors.
Independent registered representatives have
a very unique opportunity to apply behavioral investing to their clients.
These advisors although they're subject to regulatory scrutiny, can for
the most part create their own ways of servings clients.
With many they can basically see good success and grow their businesses with
a deepened and broadened understanding of the investor behavioral biases.
And therefore can include behavioral investing as
part of the advice that they provide to their clients.
The fourth category would be consultants and other financial advisors.
Consultants including investors, family officers or other entities that invest for
individuals can also greatly benefit from this course.
Because understanding how and why their clients make investment decisions
can greatly impact the investment choices, consultants can recommend.
When the investor is happy with his or her allocation and feels good about this
selection of managers from a psychological perspective, the consultant has
done his or her job and will likely keep that client for the long term.
Finally, private banking advisors and portfolio managers.
Private banks have always taken a very solemn, straightforward approach or
a straight list approach to client portfolios.
Stocks, bonds, and cash were really it for hundreds of years.
Lately, many of these private banks have added non-traditional
offerings such as venta quinta capital, VCs or hedge funds, and
others do their lineup of investment product offerings.
However, a lot of clients including many extremely wealthy clients
still have the big three which is stocks, bonds, and cash for better or for worse.
Private banking advisors in corporate banks will be well-served to
begin to adopt a more progressive approach to serving clients.
Bank clients tend to be conservative, but
they also tend to be more trusting and more hands off clients.
So this client base represents a very vast frontier to which behavioral investing
could be applied.
These clients either do not recognize that they have an appropriate portfolio or
think to recognize that only two lead that they should have been more or
less aggressive with their portfolios.
Private banks have doubled up a great deal of trust with their clients and
they should leverage this trust to include behavior investing their relationships.
Finally, this course is for any normal investor.
I often say that investors in standard finance are rational or
all the finance theory is based on the fact that agents are rational.
But that investors in general, people like you and
me are normally may or may not be rational.
So investors in behavioral finance domain are normally.
If you're not too convinced that the average bloke,
with the average investor, it's not very rational.
You may want to essentially just look at the outside world.
And that would suggest that investors in general are not very rational,
even common people, whom you would think or
expect to be rational are not perhaps very, very rational.
Let me share with you a couple of surveys, so that we found reacenty.
There was a recent survey done in a college with both high school students and
college professors.
And what they found was that 70% of high school students claimed to have above
average leadership skills and only 2% said that they eblow average skills so
that can be true.
Obviously, they have been taught by above average math teachers, I suppose.
That's how you have, because every person thinking that they're above average when
really only 2% think they're below average,
whereas rationally it should be 50/50, 50% each.
Now, forget high school students,even college professors in that particular
survey, college professors whom you would expect them to be very rational
believe that they have above average teaching skills.
Now any one of you who has gone to college will no doubt disagree with that.
And by the way I make claim I'm an above average teacher, but
the content of this course is extremely interesting.
Because we all have our biases and
we don't want to discover our biases in the financial market,
because could be a very costly way of finding our biases as [INAUDIBLE] said.
Especially in current variable attire marketing environment.
So this course is a course for normal investors like you and me,
normal people like you and me.
I hope you benefit from this course, and pay a small fee to Coursera,
and not a very hefty fee at the financial markets.
So let's get started.
[MUSIC]
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