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Successful portfolio management within organisations must draw on both orthodox and behavioural economics. The most well-developed field of behavioural economics is behavioural finance. Research has identified many aspects of the decision-making process that are shaped by heuristics and, consequently, are biased in certain ways. Understanding the nature of the decision-making process from the perspective of behavioural decision theory is a first step towards developing an awareness of decision-making biases that shape both the wealth manager鈥檚 decisions and the decisions and actions of clients. In particular, the tendency to Weight (%) losses more heavily than gains of the same magnitude explains shifts in risk preferences and persistent biases in investment decision-making. By introducing you to some of the key concepts and theories of behavioural economics and its applications to financial markets and investing, this course complements more traditional approaches to finance.

This course introduces behavioural finance and identifies its implications for portfolio and investment decision-making and asks you to apply critical thinking and teamwork to solve practical real-world investment problems that emerge from the decision-making process. The ways in which normal decision-making is shaped by heuristics and characterised by persistent biases is explored and some of the main theoretical frameworks of orthodox finance, including portfolio theory and efficient markets, are reimagined from the behavioural perspective. Researching the specific implications of investor psychology for the process of measuring risk and return for effective portfolio management and equity evaluation are developed in the second part of the course. Overall, the course provides an accessible introduction to behavioural finance and provides you with the opportunity to develop tools that facilitate a more sophisticated approach to wealth management in a context shaped by investor psychology.

On completion of this course students should be able to:

1. discuss authentic wealth management scenarios and apply relevant orthodox and behavioural finance to the wealth management process;
2. evaluate investment decision problems from the perspective of both orthodox and behavioural finance to develop more nuanced solutions;
3. critically analyse the strengths and weaknesses of finance theory and identify the scope of orthodox and behavioural decision theory in a wealth management context;
4. work collaboratively to incorporate the main findings of behavioural finance using research skills in judging among alternative investment opportunities;
5. communicate the results of investment analysis and present investment options in a manner that pays due regard to investor psychology.