1. FIN 614: Financial Management Larry Schrenk, Instructor

2. 1.What is Behavioral Finance? 2.Behavioral vs. Traditional Finance 3.Prospect Theory 4.Biases and Heuristics

3. Finance and Psychology Cognitive Errors in Financial Decision- Making Questions EMH Connections to Evolutionary Psychology and Neuroscience

4. Traditional Rational Expected Utility EMH Behavioral Bounded Rationality Prospect Theory Market Imperfections

6. Preference for Certainty Loss Aversion ‘Relative’ Evaluation

7. Overconfidence/Optimism Representativeness Anchoring Availability Framing Statistical Problems

8. Explanation 90% of Drivers Claim above Average Skill 99% of Freshman Claim Superior Intelligence Illusion of Control Financial Effects and Implications Excessive Trading Capital Budgeting

9. Explanation Base Rates Under-Utilized Sample Size Neglect Financial Effects and Implications Excessive Extrapolation Small Sample as Representative of Population

10. Explanation Initial Arbitrary Value Attila the Hun Experiment Financial Effects and Implications Benchmarks

11. Explanation Recent Issues Salient Issues Financial Effects and Implications Over-Reaction to News

12. Explanation Frame-Dependent Decisions ‘Asian Disease’ Experiment Financial Effects and Implications Effects of Frames on Financial Decisions

13. Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice and she participated in anti-nuclear demonstrations. Which of the following statements are more probable? A. Linda is active in the feminist movement. B. Linda is a bank teller. C. Linda is a bank teller and is active in the feminist movement.

14. FIN 614: Financial Management Larry Schrenk, Instructor