CAMBRIDGE, MASSACHUSETTS – MARCH 17: A person runs past Dunster House at Harvard University on March 17, 2025 in Cambridge, Massachusetts. Harvard University announced free tuition for students from families that make under $200K a year. (Photo by Scott Eisen/Getty Images)
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Artificial intelligence is reshaping markets at a velocity no previous technology has matched. Models update faster than humans can react, narratives spread globally in seconds, and capital rotates across asset classes long before fundamentals adjust.
Yet amid all this acceleration, one force remains unchanged: human psychology still drives markets and it’s not getting any more rational.
This tension between faster machines and slow-moving human behavior sits at the center of Harvard Kennedy School’s Investment Decisions and Behavioral Finance program, a three-day executive course led by Richard Zeckhauser, Michael Mauboussin, Kelly Shue, David Laibson, Robin Greenwood, Annie Duke, and Jason Furman.
Designed for CIOs, asset managers, and senior financial leaders, the program delivers something the industry increasingly needs: a practical decision-making framework for markets defined by volatility, narrative cascades, and AI-amplified noise.
1. AI Has Accelerated Markets, But Not Human Judgment
One of the biggest takeaways from the program is that AI has fundamentally changed the speed of markets, but not the biases investors bring to them.
Across the sessions, faculty emphasized that the core psychological tendencies—loss aversion, anchoring, overconfidence, mental accounting, herding—remain as influential as ever. What’s changed is that AI now amplifies these behaviors, because information moves faster than people can update their beliefs.
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Patterns like earnings underreaction, attention-driven trading, and predictable momentum aren’t disappearing. In many cases, they’re becoming more pronounced, as investors struggle to process an overwhelming flow of signals.
The main takeaway: The bottleneck in modern finance isn’t data. It’s human behaviour.
2. The Next Major Bubble May Likely Be AI, And Most Investors Aren’t Ready
Despite broad agreement that AI will reshape industries, the program underscored a growing asymmetry: expectations are rising faster than fundamentals.
According to some of the lecturers, this may look like classic bubble territory.
But unlike previous manias, the next bubble may be driven not just by speculation; but by recursive optimism. AI systems improve themselves, narratives about productivity grow exponentially, and investors begin trading not on what they believe, but on what they think everyone else believes.
The program’s faculty framed this as a “second-order market,” where success depends less on forecasting fundamentals and more on understanding collective psychology.
The implication is clear: Knowing an AI bubble is forming doesn’t protect you. Only a disciplined process does.
3. Decision Hygiene Is Becoming a Hard Skill, Not a Soft One
One of the most useful sections of the program focused on decision hygiene: the structured processes that help investors remain rational under uncertainty.
Participants learned practical tools that top investment committees now rely on:
- independent forecasts before discussion
- Premortems (or even pre-parades!) to map how decisions fail (or work out well)
- base-rate requirements for anchoring prevention
- structured dissent to combat groupthink
- red-teaming for major recommendations
- calibration tracking to measure judgment over time
These academic ideas have evolved into fully tested operational guardrails.
They help teams avoid anchoring on the loudest voice in the room, distinguish facts from narratives, and make decisions that hold up when markets become noisy.
The framing is simple: In fast markets, slowing down the decision cycle can be a competitive advantage.
4. Portfolios Need to Be Built Around Human Behavior, Not Just Expected Returns
Another major theme was that investors often construct portfolios based on mathematical optimization, even though real clients behave nothing like the models.
In volatile environments, what matters is not just risk and return, but behavioral endurance:
- How often does a client check their portfolio?
- How easily do they panic during losses?
- How do they mentally separate “pots” of money?
- Are they investing for themselves, heirs, or institutions?
- Can they tolerate illiquidity without being shocked by price movements?
Rather than fighting these tendencies, the program emphasized designing portfolios that work with human psychology, through clearer framing, more stable rebalancing rules, and communication strategies that reduce regret-driven decisions.
The insight mirrors HBR leadership principles: strategy fails when it ignores human behavior.
5. Behavioral Overlays Will Become the New Alpha
One of the most future-oriented discussions centered on the rise of behavioral overlays, processes and tools that layer behavioral insights directly into investment systems.
Within a few years, many asset managers will likely implement:
- personalized decision “cooldowns”
- risk signals based on cognitive load, physiological stress or attention patterns
- dashboards comparing outcomes of meetings with vs. without premortems
- attribution systems linking performance to behavioral processes
In other words: Behavioral alpha will become measurable, not anecdotal.
But with this comes responsibility. Lecturers emphasized the importance of consent, transparency, and ethics. Behavioral analytics can be powerful—if used carefully.
6. The Human Element Still Shapes Markets More Than Any Model
Perhaps the most striking insight from the program wasn’t about AI or analytics at all—it was about the informal forces that move capital. Markets are often shaped in hallways, over coffee, or in the quiet moments after official meetings end. Decision dynamics, internal narratives, personal motivations, and social influence matter as much as spreadsheets.
The course embraced this reality. Rather than presenting a sterile view of finance, it equipped participants to understand the messy, human, social side of markets, the part AI cannot automate.
The Harvard Playbook for Navigating AI-Driven Financial Markets
A clear framework emerged from the program – simple, powerful, and immediately applicable.
Although the course provides much more detailed information, practical examples, case studies and even bold forecasts – this checklist is an excellent tool.
1. Slow down decisions when information speeds up.Use premortems, independent forecasts, and checklists.
2. Anchor choices in base rates, not narratives.
3. Treat groupthink as a structural risk. Design dissent into the process.
4. Build portfolios around human behavior, not idealized models.
5. Prepare for an AI bubble—not with predictions, but with discipline.
6. Measure behavioral performance the same way you measure returns.
7. Use AI to improve processes, not replace judgment.
The Bottom Line
AI is reshaping markets, but human psychology continues to shape outcomes. Harvard’s behavioral finance program offers something rare in today’s financial landscape: a way to stay structured and rational in unstructured and irrational markets.
As investors face faster cycles, bigger narratives, and more complex bubbles, the organizations and individuals that win won’t be those with the most data, they’ll be those with the most behaviorally resilient decision systems.