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Advances in Behavioral Finance (Volume 1)
Modern financial markets offer the real world's best approximation to the idealized price auction market envisioned in economic theory. Nevertheless, as the increasingly exquisite and detailed financial data demonstrate, financial markets often fail to behave as they should if trading were truly dominated by the fully rational investors that populate financial theories. These markets anomalies have spawned a new approach to finance, one which as editor Richard Thaler puts it, "entertains the possibility that some agents in the economy behave less than fully rationally some of the time." Advances in Behavioral Finance collects together twenty-one recent articles that illustrate the power of this approach. These papers demonstrate how specific departures from fully rational decision making by individual market agents can provide explanations of otherwise puzzling market phenomena. To take several examples, Werner De Bondt and Thaler find an explanation for superior price performance of firms with poor recent earnings histories in the tendencies of investors to overreact to recent information. Richard Roll traces the negative effects of corporate takeovers on the stock prices of the acquiring firms to the overconfidence of managers, who fail to recognize the contributions of chance to their past successes. Andrei Shleifer and Robert Vishny show how the difficulty of establishing a reliable reputation for correctly assessing the value of long term capital projects can lead investment analysis, and hence corporate managers, to focus myopically on short term returns. As a testing ground for assessing the empirical accuracy of behavioral theories, the successful studies in this landmark collection reach beyond the world of finance to suggest, very powerfully, the importance of pursuing behavioral approaches to other areas of economic life. Advances in Behavioral Finance is a solid beachhead for behavioral work in the financial arena and a clear promise of wider application for behavioral economics in the future.
597 pages, Paperback
First published January 1, 1993
About the author
Richard H. Thaler
13 books1,808 followersRichard H. Thaler is an American economist who was awarded the 2017 Nobel Prize in Economics.
He is the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago’s Booth School of Business, where he is the director of the Center for Decision Research. He is also the co-director (with Robert Shiller) of the Behavioral Economics Project at the National Bureau of Economic Research and in 2015 was the president of the American Economic Association. He has been published in several prominent journals and is the author of a number of books, including Misbehaving: The Making of Behavioral Economics.
He is the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago’s Booth School of Business, where he is the director of the Center for Decision Research. He is also the co-director (with Robert Shiller) of the Behavioral Economics Project at the National Bureau of Economic Research and in 2015 was the president of the American Economic Association. He has been published in several prominent journals and is the author of a number of books, including Misbehaving: The Making of Behavioral Economics.
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Displaying 1 - 3 of 3 reviews
March 1, 2021
Dated but interesting academic littérature in the founding days of behavioral finance. Would suggest reading this rather than contemporary books from Shiller/Thaler. Style is a bit dry as one may expect from academic papers.
I liked the scientific approach of using a prior from behavioral studies to then design a falsifiable test based on trade data. Compare expected results to actual results.
In general I do think some empirical “anomalies” are given a prior too liberally/arbitrarily. Hence empirical results are used to justify an hypothesis that could be easily replaced. Casts some doubts on the validity of results and the falsifiability of behavioral finance.
I liked the scientific approach of using a prior from behavioral studies to then design a falsifiable test based on trade data. Compare expected results to actual results.
In general I do think some empirical “anomalies” are given a prior too liberally/arbitrarily. Hence empirical results are used to justify an hypothesis that could be easily replaced. Casts some doubts on the validity of results and the falsifiability of behavioral finance.
April 6, 2012
Only for those interested in reading academic literature.
July 9, 2020
Series of papers on behavioral investing. Could get on LibGen with some search
Displaying 1 - 3 of 3 reviews