So What Is Behavioral Finance All About?

Here is an interview about the fundamentals of behavioral finance. If you’re new to our website this article should provide you with the basic terminology and uses of behavioral finance. Enjoy.

Article Introduction (Via SCU.edu)

Human emotionsand cognitive biases play a role in the investment decision of managers and investors, claim proponents of behavioral finance. To deepen understanding about how this field can elucidate investment behavior Meir Statman answered a series of questions about behavioral finance. In this interview, Professor Statman explains the role of cognitive biases and emotions in investment decisions and indicates how investment management consultants can use the principles of behavioral finance to better serve their clients.

Article Excerpts (Via Scu.edu)

“Behavioral finance is a framework that augments some parts of standard finance and replaces other parts.”

“Behavioral finance offers an alternative concept for each of the foundation blocks of standard finance.
According to behavioral finance, investors are “normal,” not rational. Markets are not efficient, even if
they’re difficult to beat. Investors design portfolios according to the rules of Behavioral Portfolio Theory,
not Mean-Variance Portfolio Theory. And expected returns follow Behavioral Asset Pricing Theory, in
which risk is not measured by beta and expected returns are determined by more than risk.”

(Click Here To Read About The Basics Of Behavioral Finance)

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18. November 2008 by Miguel Barbosa
Categories: Behavioral Economics, Curated Readings | Leave a comment

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