The Yale School of Management is a leading center for research and teaching in behavioral finance. This field, whose rise is one of the biggest developments in finance over the past 30 years, tries to make sense of financial markets using psychologically accurate assumptions about how people form beliefs and make decisions – in particular, allowing for the possibility that people are not fully rational in their thinking. The field was pioneered by Robert Shiller, who holds appointments in both Yale SOM and the Yale economics department; several other SOM professors, including Nicholas Barberis, William Goetzmann, and James Choi, also work in the area.
Over the past decade, the ICF’s research and teaching efforts in behavioral finance have benefited greatly from the generous support of Andrew Redleaf of Whitebox Advisors. One of the most visible initiatives the ICF has undertaken with his support is the Yale Summer School in Behavioral Finance. This summer school, which has been led since its inception by Nicholas Barberis with support from the ICF’s outstanding staff members, is a one-week intensive course in behavioral finance for PhD students. The first one took place in 2009, and it has been held every two years since then, in the last week of June.
The summer school was started because it became clear to SOM faculty that, while graduate students are very keen to learn about behavioral finance, few universities offer a systematic, graduate-level introduction to research in the area. This is not because of any skepticism about the field – while behavioral finance was controversial in its early days in the 1980s and 1990s, it is now broadly embraced – but because many universities still do not have a behavioral finance specialist on their faculty; and even when they do, this faculty member is not always involved in graduate teaching. The Yale summer school was designed to give students the introduction to the field that they want, but are unable to find.
Admission to the school is competitive. Each time, the ICF receives over 100 applications for the school from highly-qualified students at top graduate programs in the U.S., Europe, and even Asia, but is able to admit only about 40 of them. The summer school runs from Monday to Friday in the scheduled week, with four 80-minute sessions on each day. The two morning classes are taught by Nicholas Barberis – the 10 sessions he teaches over the five mornings are a systematic overview of behavioral finance based on the PhD course he teaches on the subject at Yale. The two afternoon sessions on each day cover particular topics in more detail and are led by guest faculty speakers. Some of these speakers, such as William Goetzmann and James Choi, are Yale professors; others are faculty members at other universities, including Harvard, New York University, the University of Chicago, and the University of California at Berkeley.
The summer school is designed so that students have plenty of time to get to know each other and to exchange views and ideas. There is a long lunch break in the middle of the day, as well as coffee breaks in mid-morning and mid-afternoon. In the evening, the students are put in dinner groups of six or seven people, and are sent off to have dinner together at a local restaurant. The groups are structured so that each student has a different set of dinner companions on each evening, and so that they never go to dinner with students they already know from their own graduate program.
The summer school receives strong reviews from the students who attend it, and is widely viewed as one of the most valuable summer school experiences available to graduate students in finance and economics. The most successful finance researchers of the future are likely to be those who are fluent in both the language of traditional “rational” finance and the language of behavioral finance. The school appears to be accomplishing its main goal, namely to help students become fluent in behavioral finance. The attendees uniformly report that, after finishing the summer school, they feel much more comfortable when reading research papers in behavioral finance, and much better able to incorporate it into their own work.
Another striking aspect of the summer school is the strong bond that attendees form even after just one week together. The members of each summer school “class” have stayed in close touch with one another, and hold regular reunions during the main academic conferences in finance. They continue to give each other feedback on research projects, and help one another with tips and other advice as they enter the job market for faculty positions.
The summer school is a concrete example of the difference that the ICF can make with the financial support it receives – in this case, by introducing the next generation of business school faculty to new ideas, and to each other, in a way that will invigorate their research and teaching in the years ahead.