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Encyclopedia > Behavioral finance
Economics Nobel Laureate Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field.

Behavioral finance and behavioral economics are closely related fields which apply scientific research on human and social cognitive and emotional biases to better understand economic decisions and how they affect market prices, returns and the allocation of resources. The fields are primarily concerned with the rationality, or lack thereof, of economic agents. Behavioral models typically integrate insights from psychology with neo-classical economic theory. Daniel Kahneman copied from Hebrew Wikipedia article Probable source: [1] Larger version: [2] Assumed license: Fair use This work is copyrighted. ... The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel[1] (Swedish: Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), commonly called the Nobel Prize in Economics, or more acurately the Nobel Memorial Prize in Economic Sciences, is a prize awarded each year for outstanding intellectual... Daniel Kahneman Daniel Kahneman (born March 5, 1934 in Tel Aviv, in the then British Mandate of Palestine, now in Israel), is a key pioneer and theorist of behavioral finance, which integrates economics and cognitive science to explain seemingly irrational risk management behavior in human beings. ... This article or section does not cite its references or sources. ... Economics (deriving from the Greek words οίκω [okos], house, and νέμω [nemo], rules hence household management) is the social science that studies the allocation of scarce resources to satisfy unlimited wants. ... Decision making is the cognitive process of selecting a course of action from among multiple alternatives. ... Market price is an economic concept with commonplace familiarity; it is the price that a good or service is offered at, or will fetch, in the marketplace; it is of interest mainly in the study of microeconomics. ... In finance, the PE ratio of a stock (also called its earnings multiple, just multiple, or P/E) is used to measure how cheap or expensive share prices are. ... The allocation of production and consumption is a key element of any model of economics. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... Homo economicus, or Economic man, is the concept in some economic theories of man (that is, a human) as a rational and self-interested actor who desires wealth, avoids unnecessary labor, and has the ability to make judgments towards those ends. ... In behavioral system theory and in dynamic systems modeling, a behavioral model reproduces the required behavior of the original (analyzed) system such as there is a one-to-one correspondence between the behavior of the original system and the simulated system. ... Psychology (from Greek: ψυχή, psukhē, spirit, soul; and λόγος, logos, knowledge) is an academic/ applied discipline involving the scientific study of mental processes and behavior. ... Neoclassical economics is the grouping of a number of schools of thought in economics. ...


Behavioral analyses are mostly concerned with the effects of market decisions, but also those of public choice, another source of economic decisions with some similar biases. Look up Market in Wiktionary, the free dictionary. ... Public choice theory is a branch of economics that studies the decision-making behavior of voters, politicians and government officials from the perspective of economic theory. ...

Contents

History

During the classical period, economics had a close link with psychology. For example, Adam Smith wrote The Theory of Moral Sentiments, an important text describing psychological principles of individual behavior; and Jeremy Bentham wrote extensively on the psychological underpinnings of utility. Economists began to distance themselves from psychology during the development of neo-classical economics as they sought to reshape the discipline as a natural science, with explanations of economic behavior deduced from assumptions about the nature of economic agents. The concept of homo economicus was developed, and the psychology of this entity was fundamentally rational. Nevertheless, psychological explanations continued to inform the analysis of many important figures in the development of neo-classical economics such as Francis Edgeworth, Vilfredo Pareto, Irving Fisher and John Maynard Keynes. Classical economics is widely regarded as the first modern school of economic thought. ... Adam Smith FRSE (baptised June 5, 1723 O.S. / June 16 N.S. – July 17, 1790) was a Scottish moral philosopher and a pioneering political economist. ... The Theory of Moral Sentiments written by Adam Smith in 1759, was one of the most important works in the theory of capitalism. ... Jeremy Bentham (IPA: or ) (February 15, 1748 O.S. (February 26, 1748 N.S.) – June 6, 1832) was an English jurist, philosopher, and legal and social reformer. ... In economics, utility is a measure of the relative happiness or satisfaction (gratification) gained. ... The lunar farside as seen from Apollo 11 Natural science is the rational study of the universe via rules or laws of natural order. ... Homo economicus, or Economic man, is the concept in some economic theories of man (that is, a human) as a rational and self-interested actor who desires wealth, avoids unnecessary labor, and has the ability to make judgments towards those ends. ... Edgeworth Francis Ysidro Edgeworth (February 8, 1845 - February 13, 1926) was an Irish polymath who studied at Trinity College, Dublin before obtaining a scholarship to Balliol College, Oxford where he subsequently became a professor. ... Vilfredo Federico Damaso Pareto [vilfre:do pare:to] (July 15, 1848, Paris – August 19, 1923, Geneva) was a French-Italian sociologist, economist and philosopher. ... Irving Fisher (February 27, 1867 Saugerties, New York — April 29, 1947, New York) was an American economist, health campaigner, and eugenicist. ... John Maynard Keynes (right) and Harry Dexter White at the Bretton Woods Conference John Maynard Keynes, 1st Baron Keynes, CB (pronounced cains, IPA ) (5 June 1883 – 21 April 1946) was a British economist whose ideas, called Keynesian economics, had a major impact on modern economic and political theory as well...


Psychology had largely disappeared from economic discussions by the mid 20th century. A number of factors contributed to the resurgence of its use and the development of behavioral economics. Expected utility and discounted utility models began to gain wide acceptance, generating testable hypotheses about decision making under uncertainty and intertemporal consumption respectively. Soon a number of observed and repeatable anomalies challenged those hypotheses. Furthermore, during the 1960s cognitive psychology began to describe the brain as an information processing device (in contrast to behaviorist models). Psychologists in this field such as Ward Edwards, Amos Tversky and Daniel Kahneman began to compare their cognitive models of decision making under risk and uncertainty to economic models of rational behavior. The expected utility hypothesis is the hypothesis in economics that the utility of an agent facing uncertainty is calculated by considering utility in each possible state and constructing a weighted average. ... In calculating the present value of a good, economists, accountants, underwriters, and other financial analysts add together the value of the good now and its discounted value in the future. ... A hypothesis (= assumption in ancient Greek) is a proposed explanation for a phenomenon. ... This article or section does not adequately cite its references or sources. ... Economic theories of intertemporal consumption seek to explain peoples preferences in relation to consumption and saving over the course of their life. ... Cognitive Psychology is the school of psychology that examines internal mental processes such as problem solving, memory, and language. ... Behaviorism (also called learning perspective) is a philosophy of psychology based on the proposition that all things which organisms do—including acting, thinking and feeling—can and should be regarded as behaviors. ... Amos Tversky (March 16, 1937 - June 2, 1996) was a pioneer of cognitive science, a longtime collaborator of Daniel Kahneman, and a key figure in the discovery of systematic human cognitive bias and handling of risk. ... Daniel Kahneman Daniel Kahneman (born March 5, 1934 in Tel Aviv, in the then British Mandate of Palestine, now in Israel), is a key pioneer and theorist of behavioral finance, which integrates economics and cognitive science to explain seemingly irrational risk management behavior in human beings. ...


Perhaps the most important paper in the development of the behavioral finance and economics fields was written by Kahneman and Tversky in 1979. This paper, 'Prospect theory: Decision Making Under Risk', used cognitive psychological techniques to explain a number of documented anomalies in economic decision making. Further milestones in the development of the field include a well attended and diverse conference at the University of Chicago (see Hogarth & Reder, 1987), a special 1997 edition of the Quarterly Journal of Economics ('In Memory of Amos Tversky') devoted to the topic of behavioral economics and the award of the Nobel prize to Daniel Kahneman in 2002 "for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty." Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 as a psychologically realistic alternative to expected utility theory. ... The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel[1] (Swedish: Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), commonly called the Nobel Prize in Economics, or more acurately the Nobel Memorial Prize in Economic Sciences, is a prize awarded each year for outstanding intellectual... For album titles with the same name, see 2002 (album). ...


Prospect theory is an example of generalized expected utility theory. Although not commonly included in discussions of the field of behavioral economics, generalized expected utility theory is similarly motivated by concerns about the descriptive inaccuracy of expected utility theory. The expected utility model developed by John von Neumann and Oskar Morgenstern dominated decision theory from its formulation in 1944 until the late 1970s, despite powerful criticism from Maurice Allais and Daniel Ellsberg who showed that, in certain choice problems, decisions were usually inconsistent with the axioms of expected utility... The expected utility hypothesis is the hypothesis in economics that the utility of an agent facing uncertainty is calculated by considering utility in each possible state and constructing a weighted average. ...


Behavioral economics has also been applied to problems of intertemporal choice. The most prominent idea is that of hyperbolic discounting, in which a high rate of discount is used between the present and the near future, and a lower rate between the near future and the far future. This pattern of discounting is dynamically inconsistent (or time-inconsistent), and therefore inconsistent with some models of rational choice, since the rate of discount between time t and t+1 will be low at time t-1, when t is the near future, but high at time t when t is the present and time t+1 the near future. In behavioral economics, hyperbolic discounting refers to the empirical finding that people generally prefer smaller payoffs to larger payoffs when the smaller payoffs come sooner in time than the larger; when all the payoffs are either distant or proximal in time, people tend to prefer the larger. ...


Methodology

At the outset behavioral economics and finance theories were developed almost exclusively from experimental observations and survey responses, though in more recent times real world data has taken a more prominent position. fMRI has also been used to determine which areas of the brain are active during various steps of economic decision making. Experiments simulating market situations such as stock market trading and auctions are seen as particularly useful as they can be used to isolate the effect of a particular bias upon behavior; observed market behavior can typically be explained in a number of ways, carefully designed experiments can help narrow the range of plausible explanations. Experiments are designed to be incentive compatible, with binding transactions involving real money the norm. Functional Magnetic Resonance Imaging (or fMRI) describes the use of MRI to measure hemodynamic signals related to neural activity in the brain or spinal cord of humans or other animals. ... A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... This article or section does not adequately cite its references or sources. ...


Key observations

There are three main themes in behavioral finance and economics (Shefrin, 2002):

  • Heuristics: People often make decisions based on approximate rules of thumb, not strictly rational analyses. See also cognitive biases and bounded rationality.
  • Framing: The way a problem or decision is presented to the decision maker will affect his action.
  • Market inefficiencies: There are explanations for observed market outcomes that are contrary to rational expectations and market efficiency. These include mispricings, non-rational decision making, and return anomalies. Richard Thaler, in particular, has written a long series of papers describing specific market anomalies from a behavioral perspective.

Recently, Barberis, Shleifer, and Vishny (1998), as well as Daniel, Hirshleifer, and Subrahmanyam (1998) have built models based on extrapolation (seeing patterns in random sequences) and overconfidence to explain security market over- and underreactions, though such models have not been used in the money management industry. These models assume that errors or biases are correlated across agents so that they do not cancel out in aggregate. This would be the case if a large fraction of agents look at the same signal (such as the advice of an analyst) or have a common bias. For heuristics in computer science, see heuristic (computer science) Heuristic is the art and science of discovery and invention. ... Cognitive bias is distortion in the way humans perceive reality (see also cognitive distortion). ... Many models of human behavior in the social sciences assume that humans can be reasonably approximated or described as rational entities, especially as conceived by rational choice theory. ... In economics, framing means the manner in which a rational choice problem has been presented. ... Richard H. Thaler (b. ... Economics Nobel Laureate Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ...


More generally, cognitive biases may also have strong anomalous effects in aggregate if there is a social contamination with a strong emotional content (collective greed or fear), leading to more widespread phenomena such as herding and groupthink. Behavioral finance and economics rests as much on social psychology within large groups as on individual psychology. However, some behavioral models explicitly demonstrate that a small but significant anomalous group can also have market-wide effects (eg. Fehr and Schmidt, 1999). It has been suggested that Herding instinct be merged into this article or section. ... Groupthink is a type of thought exhibited by group members who try to minimize conflict and reach consensus without critically testing, analyzing, and evaluating ideas. ... The scope of social psychological research. ...


Behavioral finance topics

Key observations made in behavioral finance literature include the lack of symmetry between decisions to acquire or keep resources, called colloquially the "bird in the bush" paradox, and the strong loss aversion or regret attached to any decision where some emotionally valued resources (e.g. a home) might be totally lost. Loss aversion appears to manifest itself in investor behavior as an unwillingness to sell shares or other equity, if doing so would force the trader to realise a nominal loss (Genesove & Mayer, 2001). It may also help explain why housing market prices do not adjust downwards to market clearing levels during periods of low demand. In prospect theory, loss aversion. ...


Applying a version of prospect theory, Benartzi and Thaler (1995) claim to have solved the equity premium puzzle, something conventional finance models have been unable to do. Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 as a psychologically realistic alternative to expected utility theory. ... The equity premium puzzle is a term coined by economists Rajnish Mehra and Edward C. Prescott in 1985. ...


Presently, some researchers in Experimental finance use experimental method, e.g. creating an artificial market by some kind of simulation software to study people's decision-making process and behavior in financial markets. The goals of experimental finance are to establish different market settings and environments to observe experimentally and analyze agents behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes. ...


Behavioral finance models

Some financial models used in money management and asset valuation use behavioral finance parameters, for example

  • Thaler's model of price reactions to information, with three phases, underreaction - adjustment - overreaction, creating a price trend

The characteristic of overreaction is that the average return of asset prices following a series of announcements of good news is lower than the average return following a series of bad announcements. In other words, overreaction occurs if the market reacts too strongly to news that it subsequently needs to be compensated in the opposite direction. As a result, assets that were winners in the past should not be seen as an indication to invest in as their risk adjusted returns in the future are relatively low compared to stocks that were defined as losers in the past. Look up trend, trendy in Wiktionary, the free dictionary. ...

It has been suggested that this article or section be merged into Fundamental analysis. ...

Criticisms of behavioral finance

Critics of behavioral finance, such as Eugene Fama, typically support the efficient market theory (though Fama may have reversed his position in recent years). They contend that behavioral finance is more a collection of anomalies than a true branch of finance and that these anomalies will eventually be priced out of the market or explained by appealing to market microstructure arguments. However, a distinction should be noted between individual biases and social biases; the former can be averaged out by the market, while the other can create feedback loops that drive the market further and further from the equilibrium of the "fair price". Eugene F. Fama. ... Efficient fuked up market theory is a field of economics which seeks to explain the workings of capital markets such as the stock market. ... Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... Market Microstructure is a branch of economics concerned with the functional setup of a market. ... In cybernetics and control theory, feedback is a process whereby some proportion or in general, function, of the output signal of a system is passed (fed back) to the input. ... Definition Fair value, also called fair price, is a concept used in finance and economics. ...


A specific example of this criticism is found in some attempted explanations of the equity premium puzzle. It is argued that the puzzle simply arises due to entry barriers (both practical and psychological) which have traditionally impeded entry by individuals into the stock market, and that returns between stocks and bonds should stabilize as electronic resources open up the stock market to a greater number of traders (See Freeman, 2004 for a review). In reply, others contend that most personal investment funds are managed through superannuation funds, so the effect of these putative barriers to entry would be minimal. In addition, professional investors and fund managers seem to hold more bonds than one would expect given return differentials. The equity premium puzzle is a term coined by economists Rajnish Mehra and Edward C. Prescott in 1985. ... In economics and especially in the theory of competition, barriers to entry are obstacles in the path of a firm which wants to enter a given market. ...


Behavioral economics topics

Models in behavioral economics are typically addressed to a particular observed market anomaly and modify standard neo-classical models by describing decision makers as using heuristics and being affected by framing effects. In general, behavioural economics sits within the neoclassical framework, though the standard assumption of rational behaviour is often challenged. For heuristics in computer science, see heuristic (computer science) Heuristic is the art and science of discovery and invention. ... Neoclassical economics refers to a general approach (a metatheory) to economics based on supply and demand which depends on individuals (or any economic agent) operating rationally, each seeking to maximize their individual utility or profit by making choices based on available information. ...


Heuristics

Prospect theory - Loss aversion - Status quo bias - Gambler's fallacy - Self-serving bias Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 as a psychologically realistic alternative to expected utility theory. ... In prospect theory, loss aversion. ... Status quo bias is cognitive bias for the status quo; in other words, people like things to stay relatively the same. ... The gamblers fallacy is a logical fallacy which encompasses any of the following misconceptions: A random event is more likely to occur because it has not happened for a period of time; A random event is less likely to occur because it has not happened for a period of... A self-serving bias occurs when people are more likely to claim responsibility for successes than failures. ...


Framing

Cognitive framing - Mental accounting - Reference utility - Anchoring In economics, framing means the manner in which a rational choice problem has been presented. ... A concept first named by Richard Thaler (1980), mental accounting attempts to describe the process whereby people code, categorise and evaluate economic outcomes. ... Anchoring or focalism is a term used in psychology to describe the common human tendency to rely too heavily, or anchor, on one trait or piece of information when making decisions. ...


Anomalies

Disposition effect - endowment effect - equity premium puzzle - money illusion - dividend puzzle -fairness (inequity aversion) - Efficiency wage hypothesis - reciprocity - intertemporal consumption - present-biased preferences - behavioral life cycle hypothesis - wage stickiness - price stickiness - Visceral influences - Earle's Curve of Predictive Reliability - limits to arbitrage - income and happiness - momentum investing The Disposition Effect is an anomaly discovered in Behavioral Finance. ... The endowment effect is a hypothesis that people value a good (object) more once their property right to it has been established. ... The equity premium puzzle is a term coined by economists Rajnish Mehra and Edward C. Prescott in 1985. ... Money illusion refers to the tendency of people to think of currency in nominal, rather than real, terms. ... The dividend puzzle, which has evolved from one of Modigliani and Miller’s theorems (1959 and 1961), is directed at the claimed irrelevance of dividends in the valuation of shares. ... Inequity aversion is the preference for fair rewards and fairplay in Anthropology (in the sub-disciplines sociology, economics, sociobiology, psychology, Evolutionary psychology, and primate behaviourology). ... In labor economics, the efficiency wage hypothesis argues that wages, at least in some markets, are determined by more than simply supply and demand. ... In social psychology, reciprocity refers to in-kind positive or negative responses of individuals towards the actions of others. ... Economic theories of intertemporal consumption seek to explain peoples preferences in relation to consumption and saving over the course of their life. ... In economics, dynamic inconsistency, or time inconsistency, describes a situation where a decision-makers preferences change over time, such that what is preferred at one point in time is inconsistent with what is preferred at another point in time. ... In Economics, price stickiness is the phenomenon whereby prices do not change freely but instead stick in disequilibrium, often due to menu costs or imperfect information. ... Limits to arbitrage is a theory which assumes that restrictions placed upon funds, that would ordinarily be used by rational traders to arbitrage away pricing inefficiencies, leave prices in a non-equilibrium state for protracted periods of time. ... Momentum investing is a system of buying stocks or other equities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period. ...


Criticisms of behavioral economics

Critics of behavioral economics typically stress the rationality of economic agents (see Myagkov and Plott (1997) amongst others). They contend that experimentally observed behavior is inapplicable to market situations, as learning opportunities and competition will ensure at least a close approximation of rational behavior. Others note that cognitive theories, such as prospect theory, are models of decision making, not generalized economic behavior, and are only applicable to the sort of once-off decision problems presented to experiment participants or survey respondents. To meet Wikipedias quality standards, this article or section may require cleanup. ... Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 as a psychologically realistic alternative to expected utility theory. ... Decision making is the cognitive process of selecting a course of action from among multiple alternatives. ...


Traditional economists are also skeptical of the experimental and survey based techniques which are used extensively in behavioral economics. Economists typically stress revealed preferences, over stated preferences (from surveys) in the determination of economic value. Experiments and surveys must be designed carefully to avoid systemic biases, strategic behavior and lack of incentive compatibility, and many economists are distrustful of results obtained in this manner due to the difficulty of eliminating these problems. Preference (or taste) is a concept, used in the social sciences, particularly economics. ...


Rabin (1998) dismisses these criticisms, claiming that results are typically reproduced in various situations and countries and can lead to good theoretical insight. Behavioral economists have also incorporated these criticisms by focusing on field studies rather than lab experiments. Some economists look at this split as a fundamental schism between experimental economics and behavioral economics, but prominent behavioral and experimental economists tend to overlap techniques and approaches in answering common questions. For example, many prominent behavioral economists are actively investigating neuroeconomics, which is entirely experimental and cannot be verified in the field. Experimental economics is the use of experimental methods to evaluate theoretical predictions of economic behaviour. ... Neuroeconomics combines neuroscience, economics, and psychology to study how we make choices. ...


Other proponents of behavioral economics note that neoclassical models often fail to predict outcomes in real world contexts. Behavioral insights can be used to update neoclassical equations, and behavioral economists note that these revised models not only reach the same correct predictions as the traditional models, but also correctly predict outcomes where the traditional models failed.[verification needed]


Key figures in behavioral economics

Dan Ariely is the Alfred P. Sloan Professor of Behavioral Economics at MIT Sloan School of Management. ... Colin F. Camerer (born 4 December 1959) is an American behavioral economist and a professor at the California Institute of Technology (Caltech). ... Ernst Fehr is an Austrian economist. ... Daniel Kahneman Daniel Kahneman (born March 5, 1934 in Tel Aviv, in the then British Mandate of Palestine, now in Israel), is a key pioneer and theorist of behavioral finance, which integrates economics and cognitive science to explain seemingly irrational risk management behavior in human beings. ... David Laibson is a professor of economics at Harvard University, where he has taught since 1994. ... George Loewenstein is Professor of Economics and Psychology in the Social & Decision Sciences Department at Carnegie Mellon University. ... Matthew Rabin (born December 27, 1963) is Edward G. and Nancy S. Jordan Professor of Economics in the Department of Economics at the University of California -- Berkeley. ... Paul Slovic (b. ... Richard H. Thaler (b. ... Amos Tversky (March 16, 1937 - June 2, 1996) was a pioneer of cognitive science, a longtime collaborator of Daniel Kahneman, and a key figure in the discovery of systematic human cognitive bias and handling of risk. ...

Key scholars in behavioral finance

Robert Shiller is a well-known economist and Stanley B. Resor Professor of Economics at Yale University and holds a joint appointment with the Yale School of Management. ... Andrei Shleifer (born February 20, 1961) is a prominent academic economist. ... Richard H. Thaler (b. ...

References

  • Camerer, C. F.; Loewenstein, G. & Rabin, R. (eds.) (2003) Advances in Behavioral Economics
  • Barberis, N.; A. Shleifer; R. Vishny (1998) ``A Model of Investor Sentiment Journal of Financial Economics 49, 307-343.
  • Daniel, K.; D. Hirshleifer; A. Subrahmanyam, (1998) ``Investor Psychology and Security Market Over- and Underreactions Journal of Finance 53, 1839-1885.
  • Lawrence A. Cunningham, Behavioral Finance and Investor Governance, 59 Washington & Lee Law Review (2002)
  • Kahneman, D. & Tversky, A. 'Prospect Theory: An Analysis of Decision under Risk,' Econometrica, XVLII (1979), 263–291
  • Matthew Rabin 'Psychology and Economics,' Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March 1998.
  • Shefrin, Hersh (2002) Beyond Greed and Fear: Understanding behavioral finance and the psychology of investing. Oxford Universtity Press
  • Shleifer, Andrei (1999) Inefficient Markets: An Introduction to Behavioral Finance, Oxford University Press
  • Shlomo Benartzi; Richard H. Thaler 'Myopic Loss Aversion and the Equity Premium Puzzle' (1995) The Quarterly Journal of Economics, Vol. 110, No. 1.

Werner De Bondt


See also

Cognitive Psychology is the school of psychology that examines internal mental processes such as problem solving, memory, and language. ... This is a list of important publications in economics, organized by field. ... // Foundations The Protestant Ethic and the Spirit of Capitalism Max Weber Die protestantische Ethik und der Geist des Kapitalismus, 1904 Online version Description: In The Protestant Ethic and the Spirit of Capitalism, Weber puts forward a thesis that Puritan ethic and ideas had influenced the development of capitalism. ... Neuroeconomics combines neuroscience, economics, and psychology to study how we make choices. ... Experimental economics is the use of experimental methods to evaluate theoretical predictions of economic behaviour. ... The goals of experimental finance are to establish different market settings and environments to observe experimentally and analyze agents behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes. ... Culture speculation is the practice of engaging in or promoting an area or region through either direct investment or relocation in order to attract a pool of culture or cultured individuals. ... It has been suggested that Myside bias be merged into this article or section. ... Hindsight bias, sometimes called the I-knew-it-all-along effect, is the inclination to see events that have occurred as more predictable than they in fact were before they took place. ... This article or section does not cite its references or sources. ... The Journal of Behavioral Finance is a peer-reviewed journal that publishes research related to the field of behavioral finance. ...

External links


  Results from FactBites:
 
Behavioral finance - Wikipedia, the free encyclopedia (1888 words)
Behavioral finance and behavioral economics are closely related fields which apply scientific research on human and social cognitive and emotional biases to better understand economic decisions and how they affect market prices, returns and the allocation of resources.
Behavioral analyses are mostly concerned with the effects of market decisions, but also those of public choice, another source of economic decisions with some similar biases.
Behavioral insights can be used to update neoclassical equations, and behavioral economists note that these revised models not only reach the same correct predictions as the traditional models, but also correctly predict outcomes where the traditional models failed.
Station Information - Behavioral finance (298 words)
Behavioral finance applies scientific research on human cognitive bias to better understand economic decisions.
Key observations made in behavioral finance include the lack of symmetry between decisions to acquire or keep resources, called colloquially the "bird in the bush" paradox, and the strong risk aversion or regret attached to any decision where some emotionally valued resources (e.g.
A very specific version of behavioral finance, prospect theory, was first advanced by Amos Tversky and Kahneman in 1979.
  More results at FactBites »

 
 

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