Behavioral Finance: Psychology, Decision-Making and Markets

Abstract

The rapidly growing field of behavioral finance uses insights from psychology to understand how human behavior influences the decisions of individual and professional investors, markets, and managers. We are all human, which means that our behavior is influenced by psychology. Some decisions are simple, day-to-day choices, such as how hard we are going to study for the next test, or what brand of soda we are going to buy, but others significantly impact our financial wellbeing, such as whether we should buy a particular stock, or how we should allocate our 401(k) money among various investment funds. The purpose of this book is to present what we have learned about financial decision-making from behavioral finance research, while recognizing the challenges that remain.