Which one works better: traditional or behavioral financial theory?

 One is not better than the other, rather, both should be understood to the extend where their understanding is yielding the investor benefits

Who are the leaders in behavioral economics?
  • Adam Smith is considered the father of modern economics, and his work on free markets has influenced behavioral finance.
  • Aldo Rustichini is a behavioral economist who has studied the role of emotions in economic decisioning.
  • Charles Ferster was a psychologist who studied the effects of reinforcement on behavioral finance.
  • Daniel Kahneman studied the psychology of decision-making and its implications for economics.
  • Francis Ysidro Edgeworth  developed the concept of utility and influenced behavioral finance.
Are there any successful behavioral finance investors?

Dan Ariely most recently started BEworks consulting firm which applies behavioral finance to their school of thought when making recommendations to clients. 

What is FOMO investing?

Fear or missing out. Seen in herd bias, it is the tendency to invest in things which others are chatting about and investing in. Without any other context making a financial decision and investing where others have gone. 

What do I have to know about behavioral finance?

Understanding what behavioral finance is and the biases which play into individuals' financial decision making can be thought of as the most important pieces of the study. 

How effective is behavioral finance?

No one study of finance is perfect, however recently, the understanding that people are not always acting rationally has proven to be an effective strategy for trading markets or creating opportunity at the individual level

About the Author

Kal Salem

Kal Salem

MA Accounting - Arizona State University

A CPA and finance professional working with small businesses to educate owners and grow alongside their businesses. He holds a Masters in Accounting and a BS in Supply Chain Management. Owner at Salem CPA Services LLC.

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