Behavioral Finance

Behavioral Finance

Financial advisers are relying more heavily on behavioral finance -- the study of how unconscious biases affect financial decisions -- to coax risk-averse investors out of cash and into the markets. Meanwhile, in academia, researchers are tracking how hormones hurt returns and using brain-imaging technology on scam victims.

Special Report

  • Better Trading Through Science

    John Coates, a senior research fellow in neuroscience and finance at the University of Cambridge, has a theory. He says there would be fewer stock market bubbles and crashes if women and older men handled most of the trading.

  • Wall Street Wants to Train Your Brain

    If going really wild means moving from a three-month Treasury bill to a one-year certificate of deposit, you’re probably suffering from Irrational Prudence Syndrome -- a syndrome financial firms dread, and one they are determined to cure.

  • Data Visualization: Investors' Emotional Roller Coaster

    Emotions can sabotage even the most rationally constructed portfolio. Academic studies prove that, and so does actual investor behavior. This graphic charts the erratic pace by which individuals put money into and took money out of mutual funds over 20 years.

  • Losing Money? It Could Be Your Fault

    Investors make lots of mistakes, but why? Blame the brain says Meir Statman, a finance professor at Santa Clara University. Statman explains that hindsight and over confidence are often the culprits. Fortunately, financial advisers are coming up with new ways to protect us from ourselves. (Source: Bloomberg)

Your Money & Your Brain: A (Rational) Reading List

  • Zombies in Your Head, Not Mind, Control Daily Life: Interview

    You may feel in control, but you’re actually driven by neural “zombie systems” you’ll never even be aware of. David Eagleman’s “Incognito: The Secret Lives of the Brain,” strips away the primacy of our conscious mind, exploring the underlying forces actually determining our choices.

  • Behavioral Economists Establish a Beachhead Within Obama Administration

    Peter R. Orszag, the former White House budget director, was one of the Administration’s most prominent devotees of behavioral economics -- the study of what drives consumers to part with their money as they pick one product, retailer, or provider over another.

  • Robo-Investors Beware: What You Don’t Know Can Kill You: Books

    Financial markets aren’t utterly rational, almost perfect allocators of capital, argue Roman Frydman and Michael D. Goldberg in “Beyond Mechanical Markets.” Nor are they mere casinos stampeded by herds of irrational gamblers.

  • Chicago Economist’s ‘Crazy Idea’ Wins Ken Griffin’s Backing

    Griffin Early Childhood Center, a preschool in the low-income suburb of Chicago Heights, is the centerpiece of one of the largest field experiments ever conducted in economics.

  • Lawmakers Seek to Extend Income as Retirees Outlive Savings

    Most American households at or near retirement “are consumed by fear,” said Anthony Webb, associate director of research at the Center for Retirement Research at Boston College. “Instead of walking on the beach hand-in-hand in retirement, the reality is that they’re sitting around the kitchen table cutting coupons.”

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