Behavioral Finance

Behavioral economics and the related field, behavioral finance, study the effects of social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and the resource allocation. The fields are primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology with neo-classical economic theory. In so doing they cover a range of concepts, methods, and fields.

Behavioral analysts are not only concerned with the effects of market decisions but also with public choice, which describes another source of economic decisions with related biases towards promoting self-interest.

There are three prevalent themes in behavioral finances:

  • Heuristics: People often make decisions based on approximate rules of thumb and not strict logic.
  • Framing: The collection of anecdotes and stereotypes that make up the mental emotional filters individuals rely on to understand and respond to events.
  • Market inefficiencies: These include mis-pricings and non-rational decision making.
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Read more about Behavioral Finance:  History, Criticisms

Other articles related to "behavioral finance, behavioral, finance":

Gunduz Caginalp - Quantitative Behavioral Finance
... Quantitative Behavioral Finance is a new discipline that uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation ... of Mathematics and Editor of Journal of Behavioral Finance during 2001-2004) and collaborators including Vernon L ... and others have demonstrated significant behavioral effects in stocks and exchange traded funds ...
Hersh Shefrin
... Hersh Shefrin (born in Winnipeg, Canada) is an economist best known for his pioneering work in behavioral finance ... University, first in the department of economics and then in 1990 to the department of finance ... He has long standing collaborations with Richard Thaler and Meir Statman on behavioral finance, being one of the first economists to incorporated ideas from psychologists like Amos Tversky and Daniel Kahneman into ...
Robert J. Shiller - Career
... He has written on economic topics that range from behavioral finance to real estate to risk management, and has been co-organizer of NBER workshops on behavioral finance with Richard Thaler since 1991 ... The behavioral finance school gained new credibility following the October 1987 stock market crash ... pricing booms in Boston and Shiller was studying the behavioral aspects of economic bubbles ...
Efficient-market Hypothesis - Criticism and Behavioral Finance
... Behavioral economists attribute the imperfections in financial markets to a combination of cognitive biases such as overconfidence, overreaction, representative bias ... Behavioral psychology approaches to stock market trading are among some of the more promising alternatives to EMH (and some investment strategies seek ... It's just not going to happen." Indeed defenders of EMH maintain that Behavioral Finance strengthens the case for EMH in that BF highlights biases in individuals and ...

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