Behavioral Finance

David Hirshleifer

MPRA Paper from University Library of Munich, Germany

Abstract: Behavioral finance studies the application of psychology to finance, with a focus on individual-level cognitive biases. I describe here the sources of judgment and decision biases, how they affect trading and market prices, the role of arbitrage and flows of wealth between more rational and less rational investors, how firms exploit inefficient prices and incite misvaluation, and the effects of managerial judgment biases. There is need for more theory and testing of the effects of feelings on financial decisions and aggregate outcomes. Especially, the time has come to move beyond behavioral finance to social finance, which studies the structure of social interactions, how financial ideas spread and evolve, and how social processes affect financial outcomes.

Keywords: Investor psychology; heuristics; overconfidence; attention; feelings; reference dependence; social finance (search for similar items in EconPapers)
JEL-codes: G02 G1 G11 G14 G3 (search for similar items in EconPapers)
Date: 2014-08-14
New Economics Papers: this item is included in nep-cbe, nep-cfn, nep-evo, nep-hme and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Behavioral Finance (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59028

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