Musings on Behavioral Finance

The behavioral finance field grew up in a world where the prevailing academic assumption was that people, as a group, behave rationally. The assumption of rationality is a strong one and, over the decades, many studies have demonstrated both experimental and real-world evidence of violations of stri...

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Bibliographic Details
Published in:Journal of Financial Planning 2013-05, Vol.26 (5), p.34
Main Author: Riepe, Mark W
Format: Article
Language:English
Subjects:
Behavioral economics
Behavioral sciences
Finance
Financial planners
Online Access:Get full text
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Summary:The behavioral finance field grew up in a world where the prevailing academic assumption was that people, as a group, behave rationally. The assumption of rationality is a strong one and, over the decades, many studies have demonstrated both experimental and real-world evidence of violations of strictly rational behavior. Fair enough, people aren't fully rational, but it's dangerous to leap to the other extreme that people are utterly irrational. Numerous money managers have created money management strategies designed to exploit various behavioral anomalies. It would be interesting to see whether managers who have tried to exploit these anomalies under real-world conditions have better success than managers who employ more traditional techniques. The future is bright for behavioral finance. Simply too many instances exist in which a behavioral perspective on economics and finance is providing important insights.
ISSN:1040-3981