INVESTMENT DECISIONS AND BEHAVIORAL FINANCE:Identifying and Capitalizing on Irrational Investment PracticesA cutting-edge program on behavioral finance, the revolutionary approach to investmentdecision making. The program is taught by faculty who are major contributors to the field.
THE PROGRAMLed by a faculty of renowned experts and Some of the topics and questions covered inleading practitioners, Investment Decisions and prior sessions include:Behavioral Finance presents a revolutionary »»Understanding the new applied science ofscience for investment decision making— effective decision making.behavioral finance. Participants learn the centralprinciples and latest findings of the psychology »»How and why do financial bubbles develop, and how can they be recognized?of decision making under conditions of riskand uncertainty, with attention to practical »»What erroneous assumptions underlieapplications for those responsible for many standard financial practices? How tomanaging assets and constructing portfolios recognize and correct for the common earningsfor investment clients. These principles will manipulation strategies of corporate managers.enable them to better understand what investors »»Investigating the ways other decision makersactually do in a given set of circumstances— and companies have implemented behavioralsuch as the dramatic uncertainties associated finance approaches—and how to develop anwith debt crises in nations around the world— implementation strategy best suited to yourversus what rational analysis prescribes. interests and capabilities.Equally important, the program explains how »»How does the function of the brain affectmarkets respond given the natural proclivities decisions, including financial decisions?of investors. The recent meltdown in financial »»How to avoid making decisions that are bothmarkets, including the collapse or near collapse bad and have large down-side potential.of major financial institutions can best be »»Managing the behavioral decision propensitiesunderstood using a behavioral perspective. of your clients.The program provides fundamentals so thatparticipants can develop their own strategies »»Exploring behavioral explanations for pastfor asset allocation, diversification, and client financial crises and seeing signs for possibledevelopment and communication. future challenges. Program Dates: Faculty Chair: Richard Zeckhauser, October 13–14, 2011 Frank P. Ramsey Professor of Political Economy Tuition: $4,000
“ ny person seeking to understand human behavior A must attend this program. If Executive Education is food for the head, this program is a feast.” Hans F. Olsen, Chief Investment Officer, Bingham Legg Advisors THE CURRICULUM Program sessions change from year to year in the basic facts about financial markets. We will order for the class to stay up-to-date with the explore how investment practices should differ most important research and issues. The 2011 once we recognize the lack of rationality of session will address policy procrastination and financial markets and their inhabitants. debt crises. Recent session topics: Investing in the Unknown and the Unknowable On Behavioral Economics, Financial Decision The major profit opportunities in the modern Traps, and Systematic Irrationalities world come from investing where professional An introduction to the science of behavioral analysts fear to tread, hence there is modest economics and its application to financial competition from the investment community. management. It explores how behavioral Often this entails “sidecar” investments, where approaches to the market differ from so-called your special relationships with knowledgeable conventional or “rational” approaches. others enable you to be pulled along by a powerful “motorcycle.” Many such highly The Psychology of Individual Investment profitable investments will be in illiquid assets. Decision Making The conventional wisdom about investment Confessions of a Value Manager risk is that it is a function of the age, wealth, This presentation examines global investment income requirements, and time horizons of the strategy in relation to investor psychology. It also investor. Therefore, investment managers need includes practical lessons for current markets. only to determine the appropriate level of risk for the client, matching the portfolio to it. In fact, Behavioral Explanations for the Financial Crisis extensive behavioral research shows that risk Efficient market theory could not explain this attitudes derive substantially from overestimating unforeseen severe collapse in security prices (bold forecasting) or underestimating (timid despite little new information about the real decisions). We will examine the implications economy. Behavioral finance provides critical of this research for financial managers. insights. Two arresting phenomena are addressed: the cascade of losses from the housing sector Managing and Investing Rationally to the entire financial system, and disastrous in a Non-rational World decision making by leading financial institutions. Research suggests that standard finance is based on incorrect assumptions and fails to capture
Richard Zeckhauser, Faculty ChairPROGRAM FACULTYRichard Zeckhauser, Faculty Chair College, and serves on the Executive CommitteeFrank P. Ramsey Professor of Political of the NYU/Stern Graduate School of Business,Economy, Harvard Kennedy School where he is an Adjunct Professor of Finance.Professor Zeckhauser is a leading figure in riskanalysis, decision theory, and microeconomics. Iris BohnetHe pioneered the studies of status quo bias, Academic Dean, Professor of Public Policy,betrayal aversion, and threshold behavior, which and Director of Women and Public Policy Program, Harvard Kennedy Schoolare central subjects for behavioral finance. Hehas put his understanding to work as a board Iris Bohnet is a behavioral economistmember of small high-tech companies and a whose current research focuses on trust,principal of investment firms. He is an elected its determinants, and its relevance forfellow of the Institute of Medicine (National negotiation and for individual and collectiveAcademy of Sciences), the American Academy decision making. She has run experimentalof Arts and Sciences, and the Econometric studies on five continents assessing howSociety, and the author or co-author of 12 individuals make decisions.books and over 250 articles. Chris ChabrisRichard Bernstein Assistant Professor of Psychology, UnionChief Executive Officer, Richard Bernstein College and Adjunct Assistant ProfessorAdvisors LLC. of Neurology, Albany Medical CollegeRichard Bernstein has nearly 30 years’ Christopher Chabris is co-author of The Invisibleexperience on Wall Street, including most Gorilla: And Other Ways Our Intuitions Deceiverecently as the Chief Investment Strategist Us, a New York Times bestseller and Editor’sat Merrill Lynch & Co. He was voted to Choice. The experiment that inspired this bookInstitutional Investor magazine’s annual earned him the Ig Nobel Prize in psychology.“All-America Research Team” eighteen times, He writes from time to time for the Wall Streetincluding ten as the top-ranked analyst in Journal and other national publications. Untilhis category. His book Style Investing: Unique 2007 he was a Lecturer and Research AssociateInsight into Equity Management is widely in the psychology department at Harvard. Hisviewed as the seminal book on style-oriented research interests include collective intelligence,investment strategies. He is a trustee of, and individual differences in cognition and decisionsits on, the investment committees of the making, and cognitive illusions, especiallyAlfred P. Sloan Foundation and Hamilton illusions related to confidence.
David Laibson Michael MauboussinProfessor of Economics, Harvard University Chief Investment Strategist, Legg Mason Capital Management and Adjunct Professor,David Laibson is a member of the Russell Columbia Business SchoolSage Behavioral Economics Roundtable, theMacArthur Foundation Preferences Network, Michael Mauboussin is the author of Thinkand the National Bureau of Economic Research. Twice: Harnessing the Power of CounterintuitionHis research focuses on psychology and and More Than You Know: Finding Financialeconomics, and he currently is working in the Wisdom in Unconventional Places—Updated andfields of macroeconomics, decision and cognitive Expanded. More Than You Know was named onesciences, behavioral finance, and experimental of “The 100 Best Business Books of All Time”economics. His work on the time inconsistency of by 800-CEO-READ, one of the best businessindividuals’ decisions has become a classic. books by BusinessWeek, and best economics book by Strategy+Business. Mauboussin has beenAndrew W. Lo an adjunct professor of finance at ColumbiaHarris & Harris Group Professor of Finance, Business School since 1993 and is on the facultyMIT Sloan School of Management of the Heilbrunn Center for Graham and DoddAndrew Lo is director of the MIT Laboratory Investing. In 2009, Michael received the Dean’sfor Financial Engineering, a research associate Award for Teaching Excellence.of the National Bureau of Economic Research,a member FINRA’s Economic Advisory Gary Orren Professor of Public Policy and Management,Board, and founder and Chief Investment Harvard Kennedy SchoolStrategist of AlphaSimplex Group, LLC. Hehas published numerous articles in finance Gary Orren teaches and writes on publicand economics journals, and has written opinion, politics, and persuasion. He has workedseveral books including The Econometrics in the United States and abroad as a pollsterof Financial Markets, A Non-Random Walk and strategist for candidates, interest groups,Down Wall Street, and Hedge Funds: An government agencies, corporations, and newsAnalytic Perspective. He is the recipient of organizations, including the New York Times andnumerous awards, including an Alfred P. Washington Post. He helped draft the rules for theSloan Foundation Fellowship, a Guggenheim presidential nomination process and assists ABCFellowship, the Paul A. Samuelson Awards, News in its election night forecasting. His booksand the James L. Vertin Award. include Equality in America: The View from the
PROGRAM FACULTY [Continued]Top, Media and Momentum: The New Hampshire Management, where he was a global investmentPrimary and Nomination Politics, The Electronic strategist and portfolio manager. Wood hadCommonwealth: The Impact of New Media served many years as Governor of the CFATechnologies on Democratic Politics, and Media Institute, was Chairman of Financial AnalystsPolls in American Politics. Federation, and is currently a Trustee of the CFAI Research Foundation.Mark W. RiepeSenior Vice President, Schwab Center for Dinner Speaker:Financial Research and President, Charles Clifford AsnessSchwab Investment Advisory Managing & Founding Principal,Mark Riepe, CFA, is a regular columnist for the AQR Capital ManagementJournal of Financial Planning and his numerous Clifford Asness has been awarded the James R.studies that have appeared in publications Vertin Award by the CFA, which is periodicallysuch as the Financial Analysts Journal and given to individuals who have produced aThe Journal of Portfolio Management. Prior to body of research notable for its relevance andjoining Schwab, he served as vice president with enduring value to investment professionals.Ibbotson Associates, a Chicago-based financial Prior to co-founding AQR Capital Management,consulting firm. He earned his bachelor’s degree Cliff was at Goldman, Sachs & Co. where hein economics from the University of Chicago was a Managing Director and Director ofand his master’s in finance from the school’s Quantitative Research for the Asset ManagementGraduate School of Business. Division. Cliff has authored articles on many financial topics including multiple publicationsArnold S. Wood in The Journal of Portfolio Management and theFounding Partner, President, and Chief Financial Analysts Journal. He is on the editorialExecutive Officer of Martingale Asset board of The Journal of Portfolio Management,Management, L.P. the editorial board of the Financial AnalystsArnold S. Wood chairs the Management Journal, the governing board of the CourantCommittee of Martingale Asset Management, Institute of Mathematical Finance at NYU, theL.P., in addition to being its Founding Partner, Board of the International Rescue Committee,President, and Chief Executive Officer. Prior and is a trustee of the Manhattan Institute andto Martingale, he was a Trustee and Senior the Atlas Society.Vice President of Batterymarch Financial
“ articipating in this program is the best investment that P I have ever made in understanding market behavior.” partha Sen, Senior Vice President, Bank of America WHO SHOULD ATTEND REGISTRATION REQUIREMENTS Investment Decisions and Behavioral Finance Please visit www.hks.harvard.edu/ee/bf to is designed for senior decision makers in register. Early registration is encouraged. the investment community. Ideal participants Registration forms received after the deadline include investment company presidents, chief will be considered only if space remains in investment officers, investment strategists, the class. This program is approved by the portfolio and fund managers, pension plan CFA Institute and the CFP Board of Standards executives, senior analysts and directors of for continuing education credits. research, senior executives of corporations, and high net worth private investors. Past participants of the program and practitioners of behavioral finance should consider attending as the speakers change from year to year. The material has been significantly updated over the last three years, incorporating the latest research and applications of behavioral finance. In cooperation with CFA Institute (www.cfainstitute.org), Harvard Kennedy School Executive Education is pleased to offer a 10% discount on Investment Decisions and Behavioral Finance tuition to CFA members. The program is endorsed by CFA Institute and is approved by its Board of Standards for 15 continuing education credits. Investment Decisions and Behavioral Finance is accepted by the CFP Board of Standards for 15 credits.
www.hks.harvard.edu/ee/bf“Leadership and learning are indispensable to each other.” John F. Kennedy Executive Education Admissions John F. Kennedy School of Government Harvard University 79 JFK Street Cambridge, MA 02138 USA Phone: 617-496-0484 Fax: 617-495-3090 Email: email@example.com