Behavioral finance has shown that all people, even financial experts, are prone to making irrational and suboptimal financial decisions. It also explores how people have wants that extend far beyond traditional finance’s assumption of wanting the highest return at the lowest risk. We are not perfectly rational economic robots; we are easily driven by many wants and emotions while working with limited time, knowledge, and energy. This course explores many of the thinking errors and biases exhibited by all people, even the experts. You’ll be able to identify the nonfinancial wants that drive the financial decisions of your clients. We’ll then identify ways to improve financial decision-making in the contexts of personal financial planning and business financial management. This course will lead you from foundational finance concepts to practical applications in both personal finance and business finance.
Course ID: BFII
Behavioral Finance: Introduction and Insights
Learning Objectives
- Recognize common behavioral finance biases and heuristics
- Identify ways to reduce thinking errors caused by biases and heuristics
- Recall differences between traditional finance and behavioral finance
- Identify negative financial impacts of finance biases and heuristics
Major Topics
- Introduction to behavioral finance and its role in improving personal and business financial decisions
- The emergence of behavioral finance and its challenges to traditional assumptions
- Neuroeconomics and the influence of emotions on financial behavior
- Prospect theory, reference points, and loss aversion
- The fourfold pattern of risk-seeking and risk-averse behavior
- Framing effects and how descriptions of choices change decisions
- Heuristics and biases as shortcuts and predictable decision errors
- Overconfidence, self-attribution, and excessive optimism
- Confirmation bias, hindsight bias, outcome bias, and sunk-cost escalation
- Endowment, omission, status quo, familiarity, and in-group biases
- Mental accounting, the house-money effect, and behavioral life-cycle planning
- Fairness, reciprocity, and their effects on pricing and market behavior
- Anchoring, adjustment, and the disposition effect in investing
- Representativeness, extrapolation, availability bias, and market anomalies
- Personal finance applications, including financial security, values, savings, and spending behavior
- Business, retirement, and pricing applications: mergers, project planning, choice architecture, retirement-plan design, discounts, and decoy options
Who Should Attend
- Financial planners and investment advisors — The course directly supports client discovery, portfolio conversations, behavioral coaching, and retirement planning; it is also included in CFP exam content.
- CPAs, accountants, and other business advisors — It was adapted specifically for advisors such as CPAs, coaches, consultants, and accountants who help clients make financial and business decisions.
- Small-business owners and executives — The material addresses project selection, budgeting, valuation, capital structure, mergers, pricing, and decision errors caused by overconfidence or sunk costs.
- CFOs, finance leaders, and finance staff — Financial employees can apply the concepts to forecasting, capital budgeting, risk assessment, cash management, and investment decisions.
- HR, benefits, and retirement-plan professionals — The sections on choice architecture, automatic enrollment, company-match design, default funds, and savings nudges are especially relevant.
- MBA, finance, economics, and business students — The course was originally developed for an MBA class and connects traditional finance theory with real-world decision behavior.
- Managers and project leaders in any function — The decision-making tools, including pre-mortems, devil’s advocacy, reference-class forecasting, and System 2 thinking, apply beyond finance.
Fields of Study
FinancePrerequisites
None