An Experiential Approach to Teaching and Learning of Trading Psychology in a Finance module

Behavioural finance has recently been recognized as a subfield of finance and added to the curriculum of financial courses for both undergraduate and postgraduate studies in universities across the UK. In comparison with pedagogy for teaching traditional theory of finance, there is relatively less discussion in the literature about effective teaching methods for behavioural finance. There is, therefore, a need for more research work on pedagogy for behavioural finance and this study aims to fill this gap.
An experiential teaching strategy is designed to help students effectively learn trading psychology and its impact on trading performance. This experiential teaching strategy involves students participating in financial trading in a simulated environment and other learning activities around it in an active and reflective way. More specifically, students are expected to take part in trading practice using trading simulations, questionnaire surveys, trade data analysis, and trading psychology self-diagnosis. In this study, we focus on three of the most researched and observed cognitive biases in finance, namely, self-attribution, overconfidence, and loss aversion.
Our study generates rather positive and encouraging results and it has the following main findings. First, there is clear evidence that a large proportion of students are subject to self-attribution, overconfidence, and loss aversion in financial trading. Our questionnaire survey results are consistent with students’ self-diagnosis results, pointing to the existence of these three cognitive biases. Second, our experiential teaching strategy significantly enhances students perceived understanding level of all the three cognitive biases and their impact on trading performance. Students feedback results further confirm the success of our experiential teaching strategy as nearly 40% of student participants rate their learning experience excellent and around 50% rate it good. More interesting, students who have real life trading experience prior to the learning tend to rate their learning experience higher than those who have no prior trading experience with real money