8. Human Foibles, Fraud, Manipulation, and Regulation

Financial Markets (ECON 252)

Regulation of financial and securities markets is intended to protect investors while still enabling them to make personal investment decisions. Psychological phenomena, such as magical thinking, overconfidence, and representativeness heuristic can cause deviations from rational behavior and distort financial decision-making. However, regulation and regulatory bodies, such as the SEC, FDIC, and SIPC, most of which were created just after the Great Depression, are intended to help prevent the manipulation of investors' psychological foibles and maintain trust in the markets so that a broad spectrum of investors will continue to participate.

00:00 - Chapter 1. Introduction
03:24 - Chapter 2. Human Errors in Financial Decision-Making
22:34 - Chapter 3. Why Regulation of Finance Is Necessary
27:51 - Chapter 4. The Rise of the Securities and Exchange Commission
39:18 - Chapter 5. Regulation of Private Investments and Hedge Funds
49:14 - Chapter 6. Nongovernmental Surveillance of Insider Trading and Accounting Regulation
59:45 - Chapter 7. Protections for the Individual Investor: the SIPC and the FDIC
01:10:38 - Chapter 8. Conclusion

Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses

This course was recorded in Spring 2008.