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Emotional Finance

Course code
Course type
MSc Course
Weekly Hours
FS 2020
Prof. Dr. Lutz Johanning
Please note that exchange students obtain a higher number of credits in the BSc-program at WHU than listed here. For further information please contact directly the International Relations Office.

Course Description:

In Emotional Finance we discuss the relevance of emotions and (childhood) experiences for financial decision making. We start our discussion by revisiting neoclassical and behavioral finance and introducing the concept of emotions and emotional finance. Psychological theories and especially Freud‘s comprehensive theory of psychoanalysis are fundamental building blocks for understanding human perception and decision-making, and hence emotional finance. We elaborate Tuckett’s approach of emotional finance, which is based on psychoanalysis. As irrational exuberance and panic are stylized facts of capital markets, we study concepts like crowd psychology and herding. In the following, we discuss applications of these different concepts for asset management, risk management, and financial regulation.

An important part of the course is a group assignment. Students have to develop their own research ideas in emotional finance and conduct first empirical analyses themselves. Students get access to the German Socio-Economic Panel (SOEP), which is a large and prominent panel dataset of German households. SOEP covers in-depth information on individuals’ attitudes, values, and personalities. Combined with information on these subjects’ background and financial balance sheet, we ask students to come up with their own creative and interdisciplinary ideas, and to test these empirically. The assignment is based on chapter 3 (see below). Teams will present their results in-class.

Students must also individually write an essay in which they reflect on their key (childhood) experience and its long-run effects. Course concepts that cater to the respective students’ experience should be used as a theoretical underpinning. For example, as a single child you might have been shaped by your parent’s indulging behavior. You might identify that this is why Riemann’s hysterical form of fear suits your character, and how this affects your decision making today.

Course Contents:

  1. Neoclassical and Behavioral Finance Revisited
  2. Introduction to Emotional Finance
  3. Literature on Culture, Experiences, and Finance
  4. Overview of Psychological Theories
  5. Psycho-Analysis and Personalities
  6. Tuckett’s Approach to Emotional Finance
  7. Crowd Psychology and Herding on Capital Markets
  8. Applications: Asset Management, Risk Management, and Regulation
  9. Group Presentations
Date Time
Tuesday, 14.01.2020 08:00 - 11:15
Tuesday, 21.01.2020 08:00 - 11:15
Tuesday, 28.01.2020 08:00 - 11:15
Tuesday, 04.02.2020 08:00 - 11:15
Thursday, 06.02.2020 08:00 - 11:15
Monday, 10.02.2020 17:15 - 20:30
Tuesday, 11.02.2020 08:00 - 11:15
Students will have an improved capability to understand top-tier academic research in finance and economics.

Students will have sharpened their empirical skillset.

Students will have obtained foundations in psycholanalysis.

Lucy Ackert and Richard Deaves (2009): Behavioral Finance: Psychology, Decision-Making, and Markets (chapter 7), South-Western College Pub. Stefan Betz (2016): Uncovering the Power of the Unconscious: In-Depth Lessons from Modern Psychoanalysis for Management (chapter 2), WHU Master Thesis. Robert Shiller (2015, 3. Edition): Irrational Exuberance (part three on psychological factors), Princeton University Press. David Tuckett (2011): Minding the Markets: An Emotional Finance View of Financial Instability Additional literature will be announced during the lectures
Teaching method is lectures. Within these, there are in-class exercises, as well as class discussions. Through independent project work, students focus on certain aspects of the course.
individual essay (40%)

group assignment (40%)

class participation (20%)

There are no formal prerequisites. Some introductory knowledge in finance and investments, as well as in asset management is assumed.
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