Initial Thoughts on Behavioral Finance

As part of my course of studies at Fresno State, I’ve been exposed to a (seemingly) newer academic area: Behavioral Finance (BF).

I’m finding this whole area of Behavioral Finance a lot more interesting than I expected. It seems to represent a much more sophisticated, wilder look at the world of corporate finance than the previously accepted norm. My perception is that the previously-held convention was largely based on the idea of homo economicus, the completely rational decsion-maker who always interpreted data correctly and used formulas and models to make the mathematically optimal decision every time. It seems like BF looks at the business world much more through the lens of psychology, seeking to explain why people act as they do instead of as formulas tell them they should.

I wonder how accepted behavioral finance is as an academic area? Is it a small corner, or is it widely accepted as being on the cutting edge? I guess people have been discussing investor behavior for a long time, but this seems to take area of exploration to the next level.

I expect that the emergence of behavioral finance as a discipline (or sub-discipline) makes room for all kinds of new and interesting academic research. Is it proper to say that there are emerging markets within academia? If so, I think I just found one.

P.S. – I started writing a novel this afternoon.  Is anyone interested?

One thought on “Initial Thoughts on Behavioral Finance

  1. Charles says:

    This seems really interesting.
    I’ve always taken issue with the fact that our understanding of modern economics relies upon consumers making rational choices when we all know that they (we) don’t. If we did make rational choices, there would be no PR industry!
    I’ll stop here before I launch into a tirade….

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