READING 5. THE BEHAVIORAL FINANCE PERSPECTIVE

a contrast traditional and behavioral finance perspectives on investor decision making;

b contrast expected utility and prospect theories of investment decision making;

c discuss the effect that cognitive limitations and bounded rationality may have on investment decision making;

d compare traditional and behavioral finance perspectives on portfolio construction and the behavior of capital markets.

READING 6. THE BEHAVIORAL BIASES OF INDIVIDUALS

a distinguish between cognitive errors and emotional biases;

b discuss commonly recognized behavioral biases and their implications for financial decision making;

c identify and evaluate an individual’s behavioral biases;

d evaluate how behavioral biases affect investment policy and asset allocation decisions and recommend approaches to mitigate their effects.

READING 7. BEHAVIORAL FINANCE AND INVESTMENT PROCESSES

a explain the uses and limitations of classifying investors into personality types;

b discuss how behavioral factors affect adviser–client interactions;

c discuss how behavioral factors influence portfolio construction;

d explain how behavioral finance can be applied to the process of portfolio construction;

e discuss how behavioral factors affect analyst forecasts and recommend remedial actions for analyst biases;

f discuss how behavioral factors affect investment committee decision making and recommend techniques for mitigating their effects;

g describe how behavioral biases of investors can lead to market characteristics that may not be explained by traditional finance.