Emotions, Bayesian Inference, and Financial Decision Making

Diego Salzman and Emanuela Trifan

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: This paper presents a model in which rational and emotional investors are compelled to make decisions under uncertainty in order to ensure their survival. Using a neurofinancial setting, we show that, when different investor types fight for market capital, emotional traders tend not only to influence prices but also to have a much more developed adaptive mechanism than their rational peers, in spite of their apparently simplistic demand strategy and distorted revision of beliefs. Our results imply that prices in financial markets could be seen more accurately as a thermometer of the market mood and emotions rather than as simple informative signals as stated in traditional financial theory.

Date: 2008
Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/77455/
References: Add references at CitEc
Citations:

Published in Darmstadt Discussion Papers in Economics . 166 (2008)

Downloads: (external link)
http://tuprints.ulb.tu-darmstadt.de/4766

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:77455

Access Statistics for this paper

More papers in Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL) Contact information at EDIRC.
Bibliographic data for series maintained by Dekanatssekretariat ().