Behavioural Finance module (BU51041)

You will learn key ideas regarding the behaviour of financial investors to improve your understanding of global markets.

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Module code


As the world becomes more interconnected and reliant on technology, financial markets have evolved.

This module will introduce you to ideas and concepts linking traditional finance and the two generations of behavioural finance.

You will gain the knowledge to debate potential implications of this evolution.

This will provide you with a comprehensive understanding of the forces driving global financial markets and investment decision-making.

The module begins by setting out the way in which behavioural finance has emerged over the past four decades to become a critical issue in understanding investor and market behaviour.

The content then explores the impact of behavioural tendencies in a range of contemporary financial contexts, including portfolio management, asset pricing models, and market efficiency.

What you will learn

In this module, you will:

  • gain knowledge and understanding of the core issues, questions and models that underpin the modern notion of behavioural finance
  • understand the differences between traditional finance and the two generations of behavioural finance thinking
  • consider how wants can lead to errors, even for ‘normal’ investors and how these can be corrected
  • analyse prospect theory to understand investor behaviour; as well as the implications of behavioural finance for portfolio construction
  • explore asset pricing models and the efficient market hypothesis

By the end of this module, you will be able to:

  • demonstrate subject-specific practical skills, intellectual skills and attributes
  • understand the implications of behavioural finance thinking for modern financial markets
  • discuss the difference between rational, irrational and normal investor behaviour
  • identify situations where wants generate errors and how the likelihood and impact can be minimised
  • understand the implications of prospect theory of investor motivation, including its relationship with notions of utility
  • apply behavioural finance insights to portfolio management decisions
  • explain the role of behavioural finance in developing asset pricing models
  • share your awareness for the potential of behavioural notions to contribute to debates around market efficiency

Assignments / assessment

The coursework comprises the following:

Essay (20%)

  • 1500 words
  • Issued halfway through module with a 3 week turnaround

Final Exam (80%)

  • 2 hour in-person exam in December

Teaching methods / timetable

The module will be delivered via an 8 two hour in-person lectures. These sessions will also provide the opportunity for in-class discussions regarding the module content and its implications.

Video recordings will be available and these will provide coverage of additional material, as well as providing the opportunity for you to consolidate your understanding of the topics covered.

Week Topics covered
1 Introduction to Behavioural Finance – 1st and 2nd generation frameworks
2 Wants and benefits
3 Shortcuts and errors
4 Correcting errors
5 Expected utility and prospect theory
6 Behavioural portfolios
7 Behavioural asset pricing models
8 Behavioural efficient markets

There are 11 weeks of teaching. For this module, the exact dates of teaching and/or reading weeks are to be confirmed.


This module is available on following courses: