Leading the final session of the Yale Summer Program in Behavioral Finance this year, Nicholas Barberis, the Stephen and Camille Schramm Professor of Finance, told his students that substantive research in this active field is on the rise.
Behavioral finance is not the icing on the cake. Behavioral finance is a large part of the cake.
“Behavioral finance is not the icing on the cake,” Barberis said. “Behavioral finance is a large part of the cake.” He summarized one of the field’s central issues: “Does investor sentiment—excessive exuberance, excessive pessimism—distort the real investments that firms make?” While economists have traditionally held that such sentiment did not have much impact, recent research shows evidence of very real effects, Barberis said.
The select group of 46 doctoral students in Barberis’ class had traveled from across the country and even from Europe and Asia to attend Yale’s unique summer course. Held June 24–28 and organized by Barberis and Robert Shiller, the Sterling Professor of Economics at Yale, the program is a one-week intensive look at behavioral finance. It introduces students to the latest developments and offers them the chance to interact with their peers and top thinkers in the field.
Yale is a leading center for behavioral finance, which applies tools from social and cognitive psychology to traditional economic theory to try to explain why people sometimes make irrational financial decisions. Finance students today need to become fluent in both the traditional rational paradigm and the behavioral paradigm, Barberis said.
Some of the field’s leading scholars taught the summer program classes. In addition to Barberis and Shiller, faculty included Lauren Cohen, associate professor of finance at Harvard Business School; Kent Daniel, professor of finance at Columbia University Graduate School of Business; Xavier Gabaix, the Martin J. Gruber Professor of Finance at NYU Stern School of Business; Ulrike Malmendier, professor of economics and finance at the University of California, Berkeley; Matthew Rabin, the Edward G. and Nancy S. Jordan Professor of Economics at the University of California, Berkeley; and Andrei Shleifer, professor of economics at Harvard University
“The speakers are all really superstars in finance,” said Alex Remorov, a finance student at the Massachusetts Institute of Technology. “This has been more than a learning experience. It’s been very inspirational and motivational for me. I just finished the first year of my PhD, and it’s motivating me to keep going forward.”
Barberis said that the program is meant to influence the way students approach their own research. Inessa Liskovich, an economics student at Princeton University, hoped to apply insights from the program to her current research examining the intersection of labor and finance.
I wanted to get a sense of what we know about investor behavior. One of the big takeaways for me is that there is a large literature on psychological biases that we can use to ground our research.
“I wanted to get a sense of what we know about investor behavior,” Liskovich said. “One of the big takeaways for me is that there is a large literature on psychological biases that we can use to ground our research.”
Barberis said that the novelty of the biennial program—it’s the only summer course in behavioral finance in the U.S.—has helped it grow since its launch four years ago. He received 110 student applications this year. “Yale is particularly known for this kind of work,” he said. “And we’ve been very energetic about research and teaching in this area. The quality of our students and speakers this year was just tremendous.”
Yale's research efforts in behavioral science—including the summer program—have benefited greatly from the generous support of Andrew Redleaf, an alumnus of Yale College.